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EOQ and Total Inventory Costs of DP Dolls

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DP Dolls' inventory has an average age of 80 days and its customers pay off their accounts receivable in 40 days. The company pays its suppliers after 30 days. Given these conditions, what is the length of the company's Cash Conversion Cycle?

They are using the EOQ model to determine the optimum amount of toys to order. Every time DP orders, there is a fixed charge of $75. The total amount of product needed monthly is 10,000 units. The carrying cost per unit per year is $5.00.

a. What is DP's optimal ordering quantity? (EOQ)

b. What are the total inventory costs per year for DP Dolls?

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Solution Summary

The solution contains step-by-step calculations to determine the EOQ and total inventory costs for DP Dolls.

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Cash Conversion Cycle=(Days Inventory Out) DIO+(Days Sales Out) DSO-(Days Payables Out) DPO
=DIO+DSO-DPO
=80 days+40 days-30 days
=90 days

a. EOQ Optimum Quantity=Square Root of (2 x Order ...

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