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Mohamed says

Hi sir

I try to open the lecture but its not about this topic!!

The one played is the ” cost classification (part b ) !!

How can i open the right lecture

John Moffat says

Everything is fine at this end – the problem is at your end. If you ask on the technical support page (the link is above) then admin will suggest how you should cure the problem.

Mohamed says

http://opentuition.com/acca/f2/inventory-control-part-a-example-1-2/

This link is supposed to be for the ” inventory control part a example-1

But try to open it now & you will see that its for ” cost classification “

John Moffat says

No – the link goes to inventory control.

I repeat again that the problem is not at our end. Please do as I say and ask in the support page – admin will suggest what you need to do.

BELLO OLAIDE TITUS says

John pls, I really appreciate this inventory lecture but I think I need more lecture like this on d topic but this is d only one here, pls how can access more lectures on inventory?

John Moffat says

This is not the only lecture!

If you look at the list of lectures for F2, there are 6 lectures on Inventory Control – this is just the first one.

(In addition there are revision lectures)

Victoria says

Dear Mr Moffat

I’ve got a question. The Ex.1 says: “Inventory holding costs amount to 10% p.a. of inventory value.” But inventory value’s defined by the price of the desk, which is $25, isn’t it? so, I assume we can’t say that holding of 1 unit is equal to $2.5, because it includes several decks, for ex. in case of 500 units it’s 40,000 / 500 = 80 (desks per unit), and then holding 1 unit of 80 desks will cost us $200. And so on. Where is my mistake, plzzz?

Victoria says

I mean, therefore, the holding of 1 unit of 80 desks will cost us 80 * 2.5 = $200. And on average we are being charged on 250 units for the whole year, so it’ll be 250 * 200 = $50,000.

In case of 750 units we’ve got 40,000 / 750 = 53.(3) (desks per unit), therefore 53.(3) * 2.5 = $133.(3) per unit, and (750 / 2) * 133.(3) = $50,000 (total payment for holding). I mean, it should be the same in any case, because the number of desks and the price of 1 desk are constant in the task.

Regards,

Victoria

Victoria says

OK, never mind, I see it now

1 unit = 1 desk

John Moffat says

Thats correct

(Sorry i did not answer earlier, but your question appeared during the night here and I was asleep )

Munazza says

I study the topic before while was doing my B.Com…In Cost Accounting. But this is the best explanation..

Thanks

Bartek says

this is great, many thanks!

Adedayo says

Thanks to the management of Open Tuition!

John Moffat says

You are very welcome

Al-amin aye says

Lot of thanks for open tuition

tehreem says

OMG. Thank you OT. Now i can watch these lectures on my phone as well!

Martynas says

Hi. First of all thanks a million for these free videos.

I have question regarding option a. If you order 500 units and they charge you 10% p.a of inventory value in a day-to-day basis. So you pay 625$. I understand that after you sell those units, you will order another “batch” of 500 units. So shouldn’t 625$ be charged again and again (for 80 times) by the storehouse?

John Moffat says

Because it is being charged on a day-to-day basis, some days you will be charged on a full 500 units and some days on zero units (because the inventory level keeps going between 500 (when you receive an order) and 0 (just before you receive the next order). So it is as though on average you are being charged on 250 units for the whole year.

Eddie says

Thank you for presenting the lectures. I have a question about the calculations of inventory cost in example 1 part 2 where the order quantities are 750 units. When calculating the reorder cost, it seems not quite realistic to use 53.33 times 20 because the real number or orders should be 54. It is true to use 53.33 if the system is in long run, but here it is just for one-year base. And in terms of the calculations of holding costs, the average inventory level for the last “period” should be 250/2=125. Therefore, I think the calculations for the reorder cost should be 54*20=1080, the inventory cost should be ((750/2)*(53/54)+(250/2)*(1/54))*2.5=926 assuming that the interval between each replenishment is the same, or(((750*3/2)/3)*(159/160)+(250/2)*(1/160))*2.5=933.6 assuming that the items are sold at the same rate.

Could you please correct my faults in this. Thank you

John Moffat says

Why do you say it is just for one year?

The question says there is a demand of 40,000 desks per year – this implies every year.

As I explain in the lecture, some years there will be 54 orders and some years only 53 orders. However there will be 53.33 orders a year on average.

We always make this assumption (and it is important in the exam not to round it).

Without this assumption, the EOQ formula itself is not valid.

Eddie says

oic, but if it is specifically for one year, am I right in the calculations?

John Moffat says

Yes, but it will never ever be for just one year in the exam.

Dipty says

Hi. For holding cost, why do we always have to divide the total number of units by 2? I missed that bit. Thanks

John Moffat says

Because the level of inventory keeps moving between the order quantity (when an order has just been received) and zero (just before the next order is received).

So the average inventory throughout the year is the order quantity / 2.

Dipty says

Sorry I still cant understand this. Do u mean because there are 2 choices? that is why it is divided by 2? :s

John Moffat says

No – there are not two choices.

Suppose that the order quantity is 500 each time. You get a deliver of 500, so you have 500 in your warehouse. You sell these 500 over a few weeks/months, and the level of inventory in the warehouse falls to zero. Then you get a new delivery of 500 and the level goes back up to 500. This keeps repeating, so throughout the year the inventory level keeps moving between 500 and zero.

Therefore on average the level is (500 + 0)/2 = 250 units.

Have a look at the lecture again – I draw a little graph to illustrate how the inventory level keeps changing and therefore why the average inventory is the order quantity divided by two.

kimrong says

Hi John

I have a problem with a phrase:

Overtime is paid at a rate of time and a quarter.

what does it mean? if the workers are paid $4 per hour.

and total overtime 26 hrs, which is 8 hrs for specific order and the rest is general order.

question asking to compute the direct cost of specific overtime.

May u help about it?

John Moffat says

Please do not ask a question about labour under a lecture on inventory control! Ask in the F2 Ask the Tutor Forum.

‘Time and a quarter’ means that for every hour they work they are paid for 1.25 hours.

So…..if overtime is 26 hours they will be paid 26 x 1.25 x $4 for the overtime.

Direct cost of labour is basic pay, plus overtime premium on specific job. (Rest is indirect cost)