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May 20, 2015 at 11:56 am
Does the cost of the inventory itself (in this case $25/unit) not matter? The question is about calculating the cost of Inventory p.a (which I think includes the purchase price of the inventory)
Also if we used that, would it distort the EOQ?
John Moffat says
May 20, 2015 at 5:34 pm
The cost of the inventory of $25 if not relevant because it would be the same total cost over the year however many we order each time. We are still ordering the same total number of units over the year, and so the total purchase price will be the same. We are costing out over the year and only the total order and total inventory costs will change with the number ordered each time.
The purchase price is only relevant if the holding cost per unit is a % of the purchase price (but only relevant for calculating the holding cost per unit), or if there are discount offered for purchasing larger quantities each time (which is dealt with in the later lectures.)
May 11, 2015 at 9:39 am
this is very good
thanks for the lecture.
February 27, 2015 at 11:08 am
Is there any kind of copyright problem or anything if i download these lectures so that i can see them later???
February 27, 2015 at 11:55 am
The lectures are copyright of OpenTuition, and they are not downloadable – they can only be watched online.
It is the only way that we can keep this website free of charge.
December 7, 2014 at 6:19 am
These video today they r not playing???
December 7, 2014 at 8:34 am
The videos are working fine. Check on the support page for help – the link is above.
December 13, 2014 at 2:58 am
Sir, this lecture is not working. Message is come up file error. May you please do needful so I can listen this lecture. Thanks.
December 13, 2014 at 3:00 am
Error loading media: file could not be played.
December 13, 2014 at 9:36 am
The lecture is working fine – the problem must be at your end and you should go to the support page to get help. The link to the support page is above.
November 13, 2014 at 2:01 am
Thx for lectures,John.
but I have a small question,I bought a latest text book published by BPP,and I planned to look though each chapter of the book after watching lectures ,but the contents of your lectures are quiet different from the book,which makes me confused %>_<%
November 13, 2014 at 8:28 am
The chapters may be in a different order, but the contents are not quite different! Our lectures go through most of what is needed for the exam.
If you understand our lectures you do not really need to use the Study Text, but what you must have is a Revisiom Kit because it is vital to practice as many questions as possible.
November 13, 2014 at 12:44 pm
sorry I didn’t express myself properly, I do wanna say the order is different…
But it’s good to know that I don’t have to go through the whole textbook coz it’s too much in the book!
BELLO OLAIDE TITUS says
October 10, 2014 at 7:58 am
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?
October 10, 2014 at 4:10 pm
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)
September 27, 2014 at 9:13 pm
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?
September 28, 2014 at 3:46 am
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) = $50,000 (total payment for holding). I mean, it should be the same in any case, because the number of desks and the price of 1 desk are constant in the task.
September 28, 2014 at 7:13 am
OK, never mind, I see it now
1 unit = 1 desk
September 28, 2014 at 8:37 am
(Sorry i did not answer earlier, but your question appeared during the night here and I was asleep )
September 9, 2014 at 10:21 pm
I study the topic before while was doing my B.Com…In Cost Accounting. But this is the best explanation..
August 28, 2014 at 4:48 pm
this is great, many thanks!
August 5, 2014 at 12:25 am
Thanks to the management of Open Tuition!
August 5, 2014 at 5:51 am
You are very welcome
Al-amin aye says
August 21, 2014 at 3:56 am
Lot of thanks for open tuition
August 3, 2014 at 2:13 pm
OMG. Thank you OT. Now i can watch these lectures on my phone as well!
July 15, 2014 at 2:43 pm
Hi. First of all thanks a million for these free videos.
I have question regarding option a. If you order 500 units and they charge you 10% p.a of inventory value in a day-to-day basis. So you pay 625$. 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?
July 16, 2014 at 6:37 am
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.
May 25, 2014 at 3:04 pm
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
May 25, 2014 at 3:08 pm
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.
May 25, 2014 at 3:21 pm
oic, but if it is specifically for one year, am I right in the calculations?
May 25, 2014 at 3:47 pm
Yes, but it will never ever be for just one year in the exam.
May 19, 2014 at 3:17 pm
Hi. For holding cost, why do we always have to divide the total number of units by 2? I missed that bit. Thanks
May 19, 2014 at 3:34 pm
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.
May 20, 2014 at 6:34 am
Sorry I still cant understand this. Do u mean because there are 2 choices? that is why it is divided by 2? :s
May 20, 2014 at 7:04 am
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.
May 11, 2014 at 3:27 am
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?
May 11, 2014 at 10:15 am
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)
May 9, 2014 at 5:22 am
Thanks, u completly solved my problem.very easy o understand as compered to text books recommended.
April 7, 2014 at 10:01 am
Same here,I MISS THE LECTURES
April 7, 2014 at 10:14 am
The lecture is working find, the problem must be at your end.
Have you looked at the support page (the link is above)?
April 2, 2014 at 6:36 pm
am unable to see any of the lecture videos, even after refreshing many times and following the support instruction.
i didnt face these problems in last december revision time, did open tuition change anything in the format of the videos since last december?
April 2, 2014 at 6:41 pm
Have you looked at the technical support page? The link to it is above.
April 2, 2014 at 6:57 pm
yes i did, but it didnt help, i’ve been trying to open the videos in the past few days and on different computers with different internet connexions but still, a blank page with ads comes up only.
April 2, 2014 at 3:03 pm
i have a problem with connectivity.When i play these lectures they would do fine upto around 5 mins and its starts to freeze in intervals of 2 then 5 upto 20 seconds at times and would deteriorate until it does not play at all.what can i do to rectify this problem
Have you looked at the technical support page? The link is above.
jameela hinds says
January 29, 2014 at 1:27 pm
How come the purchase cost is not included in the total cost?
January 29, 2014 at 1:50 pm
You can include it, but only if asked for. It is not relevant for the decision because it is the same over the year regardless of how many are ordered each time.
However, the one time when it has to be considered is when there are quantity discounts (see the next lecture).
January 16, 2014 at 4:43 pm
Thank you for the opentuition initiative. Overall it is outstanding. I just have one comment regarding this section. The average assumption used is too simple. This number should either be given, or additional information provided to calculate it. eg: In the example, the 500 unit average is given as 250, by simply dividing 500 by 2. If stock levels are being ordered every 4.5 days, one would assume the average sales per day to be around 111. This would make the average stock level closer to 333 for the year (try it out with ta simple excel table). By over simplifying examples in the material, a problem could be created in the exam and time could be wasted by the students trying to get their heads around the disconnect.
January 16, 2014 at 5:28 pm
I am sorry, but you are completely wrong!!!
If 500 units are ordered each time, then the inventory levels vary between 500 and zero and the average inventory is 250 units. The days between orders will be 365 / number of orders, and the number of orders will be the demand per year / the order quantity. It will not be a random 4.5 days!
The EOQ formula itself depends on the assumption that the average inventory level is the order quantity divided by 2 (try proving it yourself, even if though the proof is not in the syllabus).
We do not over simplify the examples and a problem cannot be created in the exam as a result. To say that time could be wasted by students trying to get their heads round the disconnect is quite simply rubbish – there is no disconnect.
November 21, 2013 at 5:43 pm
very useful….. thanks
September 8, 2013 at 6:49 pm
Great Lecture …)
August 3, 2013 at 2:16 pm
wile the tutor show 640
August 3, 2013 at 4:59 pm
The demand is 40,000!!!
So it is 40000/1250*20 which is equal to $640!!
(I know that in a hurry I wrote 4000 instead of 40000, but it should have been obvious that it was meant to be 40000 for the same reason that it was 40000 for each of the other 4 calculations!)
March 9, 2013 at 2:44 pm
can not watch the video it says server not found
March 8, 2013 at 12:02 pm
this is the best study material i have seen. so sad im just discovering open tuition.. after wasting so much money on lsbf and still didnt pass.thanks so much
February 27, 2013 at 11:37 pm
February 24, 2013 at 7:48 pm
This video is not playing
February 11, 2013 at 11:56 am
aren’t open tuition’s notes enough to read? do we really have to study text book?
February 28, 2013 at 2:35 pm
Our Course Notes contain enough to pass the exam, provided that you practice lots of questions (by getting a Revision/Exam Kit from one of the publishers).
January 28, 2013 at 12:28 pm
Very clear and easily understood..thanks Sir!
Samuel Mayes says
January 12, 2013 at 6:52 pm
Superb. As usual.
December 19, 2012 at 5:43 pm
thanks for explaining in the example however is there a formula to work out inventory cost like EOQ
December 20, 2012 at 5:07 pm
@fourteenapril2012, You can invent your own formula if you want, but in the exam you will be tested that you understand – not that you have just learned a formula for the cost. So do not learn a formula – make sure that you understand how the costs have been calculated. Once you understand then it is very easy.
Tharua ( ਠਰੂਆ ) says
October 26, 2012 at 11:17 am
Very nice lecture
October 10, 2012 at 11:29 pm
very very good explaining, thank u soooo much SIR.
October 7, 2012 at 8:24 pm
Great lecture. I struggled understanding this straight from the text book. Thanks!
October 6, 2012 at 2:11 pm
good way of explaining a complex subject .
July 9, 2012 at 8:14 am
is it helpful for self study because i only taking lectures from open tuition.
July 9, 2012 at 8:13 am
understandable lectures! thanks Open Tuition
My question is that if i will take all lectures, i can go for examination. Because i only taking lectures from open tuition.
July 9, 2012 at 9:47 am
@success4u, You should also make sure that you study from one of the study texts available. It is also very useful to have a Revision/Exam Kit, because practicing questions is the best way of all of learning for the exam.
April 19, 2012 at 8:14 am
Thanks for such a nice and understandable lecture
April 9, 2012 at 4:28 pm
Very good explanation
March 31, 2012 at 8:00 am
for the lding cost calcuation, where its divided by 2 to get the average. i understand the graph drawn to illustrate how and why the average was calculated. but my question is why not take the whole qantity? instead of the average, which will give only an approximation.
March 31, 2012 at 12:49 pm
@zeeprincess, we assume that holding costs are charged on a day by day basis – a large cost when the warehouse is full, and no cost when it is empty.
So the total cost over the year will be the average inventory level multiplied by the holding cost per unit.
I do not see why the average is an approximation!
March 23, 2012 at 3:03 pm
I can’t see the video
February 28, 2012 at 4:24 pm
wow! this was excellent illustrated… god bless you open tuition..
February 7, 2012 at 7:29 pm
The purchase cost will stay the same regardless of the quantity being ordered. However in later chapters when discounts is introduced the purchase price/cost will become relevant in the decision making.
April 6, 2011 at 5:46 pm
thank you great teacher
March 2, 2011 at 7:50 pm
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