Jonathon Maine is the inventory control manager of the Aucetics Company. In 2020, the annual demand for product X was 7500 units, and the order quantity Q was set to be 535 units per order. Jonathon Maine is planning for next year inventory. The annual demand of product X is expected to remain the same (7500 units per year). Utilizing the EOQ model, if Jonathon changes the order quantity Q to 680 units per order, the total annual ordering cost wil:

decrease

Explanation:

The ordering quantity for the current year is 535 units, this means that the company must make 7,500 / 535 = 14.02 orders.

If the ordering quantity increases to 680, the number of orders will be 7,500/ 680 = 11.03.

Regardless of how much it costs to place an order, the number of orders made is 3 less than in the previous year, therefore, the ordering costs must decrease.

What are the advantages of writing out a budget?

A budget enables you to know what you can afford, take advantage of buying and investing opportunities, and plan how to lower your debt. It also tells you what is important to you based on how you allocate your funds, how your money is working for you, and how far you are towards reaching your financial goals.

EXPLANITION:

1.  Gives you control over your money – A budget is a way of being intentional about the way you spend and save your money.    It is said that with budgeting, you control your money and not your money controls you.  Budgeting saves you the stress of suddenly having to adjust to lack of funds because you did not initially plan how to spend them.  It also helps you decide if you want to sacrifice short term spending like buying coffee everyday in exchange for a long term benefit like a cruise vacation or a new HDTV.

2.  Keeps you focused on your money goals –  You avoid spending unnecessarily on items and services that do not contribute to attaining your financial goals.  If you are working with limited resources, budgeting makes it easier to make ends meet.

3.  Makes you aware what is going on with your money – With budgeting, you are clear on what money is coming in, how fast it goes out, and where it is going to. Budgeting saves you from wondering every end of the month where your money went.  A budget enables you to know what you can afford, take advantage of buying and investing opportunities, and plan how to lower your debt. It also tells you what is important to you based on how you allocate your funds, how your money is working for you, and how far you are towards reaching your financial goals.

4.Helps you organize your spending and savings – By dividing your money into categories of expenditures and savings, a budget makes you aware which category of expenditure takes which portion of your money.  That way, it is easy for you to make adjustments.  Budget also serves as a reference for organizing your bills, receipts, and financial statements.  When all of your financial transactions are organized for tax time or creditor questions, you save time and effort.

 5.Makes you decide in advance how your money will work for you.

6. Enables you to save for expected and unexpected costs – Budgeting allows you to plan to set aside money for emergency costs.

7. Enables you to communicate with your significant others about money – If you share your money with your spouse, family, or anyone, a budget can communicate how you use money as a group.  This promotes teamwork on working for common financial goals and prevents conflict on how money is used.  Creating a budget in tandem with your spouse will avoid conflicts and resolve personal differences on how your money is spent.   Budgeting teaches family members spending responsibility and accountability.

8. Provides you with an early warning for potential problems – When you budget and take a “big picture” view, you will see potential money problems in advance, and be able to make adjustments before the problem appears.

 9.Helps you determine if you can take debt and how much – Taking debt is not necessarily a bad thing if the debt is necessary or you can afford it.  Budgeting shows you how much a debt load you can realistically take without being stressed or if taking the debt load is worth it.

10. Enables you to produce extra money – In budgeting, you get to identify and eliminate unnecessary spending like late fees, penalties and interests.  These seemingly small saving can add up over time.

You should be budgeting if you are:

1.working on limited money.

2.trying to lighten your debt load and solve your debt problem.

3.working towards a financial goal

4.planning to retire early

5.trying to make the best use of your money

    Budgeting has one big drawback.  For it to work, you have to abide by it consciously.  It does not really save you from bad spending habits.  It only gives you a goal and reference to help you stay focused.

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