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ToolMart is a small chain of stores catering to the do-it-yourself market with good- quality,...

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Question

Accounting

ToolMart is a small chain of stores catering to the do-it-yourself market with good- quality, well-priced tools for home repairs. ToolMarts sales are relatively stable at

$1,250,000 with an average selling price of $50 and average cost of $11.50. The average cost to place an inventory order is $34 and the storage cost for its inventory is

$10 per unit. Average days in inventory is 60. ToolMarts cost of capital is 12% and its tax rate is 28%.

Required:

  1. If ToolMart orders 1,000 units per order, calculate the total annual after-tax order cost.
  2. Calculate the after-tax cost of holding a unit of inventory.
  3. Calculate the economic order quantity (EOQ).

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