ACCA F2 Revision part 7 Inventory Control

F2 Revision Lectures

Revision notes page used in this lecture


    • Profile photo of John Moffat says

      It depends what the question asks for.

      However do appreciate that the total purchases cost over the year will be the same whatever the eoq, unless there are discounts involved. Without discounts it is only the total of the holding and order costs that will change.

      Have you watched the main lectures on this (as opposed to the quick revision lectures)?

      In the real exam the question will make it wry clear which total is wanted. This example is just a quick one for me to use revisin the topic.

  1. Profile photo of Erica says

    Sir, what about this :
    A supermarket carries inventory of a certain for which of the following information is available :
    The demand is 500 units per day; the lead time is 4 days; the re-order quantity is 3,000 units. At what level of inventory should a replenishment order be placed in order to ensure that there are no stock-outs?
    (answer is 2000 units) i do not know how to work this one out.

  2. Profile photo of Erica says

    Sir, how do you work this out?
    A company purchases 5000 units per quarter at an even rate throughout the year. Each order placed with the supplier incurs a delivery charge of $20. The annual cost of holding one unit in inventory is $5. What is the minimum total of the inventory costs (order costs plus holding costs) per year?

  3. avatar says

    Sorry if this has been asked before, but when calculating the total cost p.a. at the EoQ, if the number of orders calculated returns a decimal answer (such as 11.25 orders in the question above), shouldn’t we round to 12 and then apply the order cost? Surely there’s no sense is calculating the cost of 11.25 orders…(unless we live amongst unicorns).. or is this like an average and in reality you’d make 10 orders of 160 and an 11th order of 200 units (or what ever other arrangement)

    • Profile photo of John Moffat says

      Obviously you cannot make 11.25 orders.

      However (and I do explain this in the lecture) we assume that it is a long term decision. In the first year you will place 12 orders, but there will be some inventory left at the end of the yea. So in the second year you will only need 11 orders, and so on.

      On average there will be 11.25 orders, and it is important for the costings not to round this.

Leave a Reply