Gomak Incorporation Case Study Solution
As such, the new policy of ordering would most probably have appositive effect on the process of purchasing, because the company would not have any cash issues as the company have gotten enough time for cash collection, hence there would be no need to go for line of credit which conversely reduce the interest expenses and increase the profitability of company. In doing so, the company would effectively coup up with the rising issues of inefficient cash management (Cohen, 2015).
Recommendation
To sum up, Mr. Gauthier has been ordering 500 cases/order, contra wise it has increased the ordering cost thus the total cost of inventory approximate to $60579. The ordering cost have reduced because of calculating new optimal order quantity i.e. 655, leading to reduced cost of inventory benefiting the company by saving $2509 and increasing the profitability of company. This in turn, would also helped the company in reducing the interest cost as line of credit has not been needed for purchasing the inventory due to the increased number of ordering months. By doing so, Mrs. Menard would require less time for ordering quantity (Jelinek, 2017).
Appendix A
| Holding Cost | |
| insurance cost | 20000 |
| workers salary | 4980 |
| fixed warehouse cost | 12000 |
| total holding cost | 36980 |
| total holding cost per case | 24.65333333 |
Appendix B
| Demand | |||
| Jars per month i.e. 6250 | 75000 | ||
| Demand in cases per year | 1500 | ||
| Per order | 500 | ||
| Purchase price per case | 4.5 | ||
| Purchase price per order | 2250 | ||
| Shipping insurance per order | 250 | ||
| Transport cost per order | 1500 | ||
| Taxes per order | 337.5 | ||
| Total cost per order | 4337.5 | Time(min) | 15000 |
| Annual total cost | 13012.5 | Time (hour) | 250 |
| Interest expense per order | 86.75 | Salary | 19.92/hour |
Appendix C
| Ordering Cost | |
| Mrs. Menard | 10500 |
| interest expense for one order | 86.75 |
| total ordering cost | 10586.75 |
| total ordering cost per case | 3528.916667 |
Appendix D
| Total Cost | |
| holding cost | 36980 |
| total ordering cost | 10586.75 |
| Purchasing cost | 13012.5 |
| total cost | 60579.25 |
| New Total Cost | |
| holding cost | 36980 |
| total ordering cost | 8077.726733 |
| Purchasing cost | 13012.5 |
| total cost | 58070.22673 |
Appendix E
| economic order quantity | 655.3050351 |
| number of orders | 2.289010338 |
| months per order | 5.242440281 |
| new total ordering cost | 8077.726733 |
| savings | 2509.023267 |
.......
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