Expand Co S Production Has Suddenly Increased From 10 000 Units Per Annum To 50 000 2838730

Expand Co’s production has suddenly increased from 10,000 units per annum to 50,000 unitsper annum. This rise in production was not planned, but arose due to an increase in demandwhen a competitor went out of business unexpectedly. Inventory of finished goods remainnegligible. Due to the unplanned nature of the increase, inputs have had to be sourced frommany different suppliers at different prices and this has resulted in reduced productionefficiency. Production levels are expected to stay at 50,000 units per annum for theforeseeable future, and the owners are concerned that they need to control working capital.They are specifically concerned about raw material inventory.Expand Co. is keen to source the main raw material component from a single supplier i.e.Warm Co. Two units of the raw material component are required for each unit of final output.Warm Co. is willing to supply Expand Co. and the following information is available:The cost is $1.50 per unit, but a discount of 5% is offered on orders of 20,000 units or more.Expand Co. estimates that the ordering costs are $300 per order and the holding cost of oneitem for one year will be 20% of the purchase price.

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