View all ACCA F2 / FIA FMA lectures >> | This ACCA F2 / FIA FMA lecture is based on OpenTuition course notes, view or download here>> |

### Comments

### Leave a Reply

You must be logged in to post a comment.

OpenTuition.com Free resources for accountancy students

Free ACCA lectures and course notes | ACCA AAT FIA resources and forums | ACCA Global Community

Amanpal says

Hi Mr John Moffat

Thank you for your lectures, they are helping me understand the subject better alongside Kaplan text books. Could you please help? I have done the order level at 10000 and am getting a different result to you?

40000/10000 x 4 x 20 = 80

10000/2 = 5000 x 2.4625 = 12312.50 + 80 = 12392.50

40000 x 98.5 x 25 = 98500 000 + 12392.50 = $98 512 393

I am not sure where my mistake is?

Kindest regards

johnmoffat says

985000 + 12393.5 does not equally 98512393!! It is equal to 997393.5

(By the way, the answers to all of the examples are at the back of the Course Notes – see the contents page!)

Mona says

i think the mistake is on 40000x 98.5x 25 which should be 40000x 98.5%x 25.

hope you see the point 98.5 is a percentage

Roisin says

Thank you. The lectures explain things very well.

rajive says

Is opentuition lectures and notes adequate enough to pass f2? I am self studying and my work schedule may not be so flexible to facilitate other tuition providers.

johnmoffat says

Yes, they are sufficient, provided that you get hold of a Revision / Exam Kit in order to practice lots of questions.

rajive says

Thank u sir.

johnmoffat says

You are welcome

Tyler says

Hi Sir, I am currently using this lecture for paper F9. My question is that there are two remaining lectures for paper F2 which are for EBQ Example 4&5 and Re-order Level. Do the last two lectures apply for paper F9 as well? Because in the course notes for F9, it stops at example 3 and then last page has something about just in time system and that’s about it for that chapter.

johnmoffat says

No (or Yes )

Paper F9 only tests on the EOQ formula – it does not test on the EBQ formula or on reorder levels.

Tyler says

Why you put “yes” in brackets then? :p

johnmoffat says

No, they are not in F9. Yes, what you say is correct.

sdmaalex says

Thanks alot! Great lecture

Daniela says

hi, i am new here. tell me please what text book do you use for your lecture, thanks.

johnmoffat says

We use our own Course Notes. You can find the link above the lecture on the right hand side.

r rupalia says

Hi, I am unable to view this clip online, it says page not found. Any help?

Thanks.

johnmoffat says

The lecture is working fine. Best if you look at the support page – it must be a problem specific to your device.

Macha says

I have understood that if the holding cost per unit is fixed, it will not be affected by the discount while calculating the total annual holding cost. But, in the BPP Practise & Revision Kit, there is the exercise below (Answers Bank 6.19 page 128)

“A company uses an item of inventory as follows.

Purchase price $25 per unit

Annual demand 1,800 units

Ordering cost $32

Annual holding cost $4.50 per unit

EOQ 160 units

What is the minimum total cost assuming a discount of 2% given on orders of 300 and over?

A $45,720.00

B $44,953.50

C $45,000.00

D $44,967.00″

I got $44,967.00 and chose D.

But they chose B. They applied the discount in the total holding cost computation. Below are the details:

“With a discount of 2% and an order quantity of 300 units, unit costs are as follows.

Purchases $45,000 × 98% 44,100.00

Holding costs (W1) 661.50

Ordering costs (W2) 192.00

Total annual costs 44,953.50

Workings:

(1) Holding costs = average inventory × holding cost for one unit of inventory for one year

Average inventory = order quantity ÷ 2 = 300 ÷ 2 = 150 units

Holding cost for one unit of inventory for one year = $4.50 × 98% = $4.41

=> holding costs = 150 units × $4.41 = $661.50

(2) Ordering costs = number of orders × ordering costs per order ($32)

Number of orders = Annual demand ÷ order quantity = 1,800 ÷ 300 = 6 orders

=> ordering cost = 6 orders × $32 = $192″

Please help. I am confused.

johnmoffat says

Your answer is correct and BPPs answer is wrong.

You only assume that the holding cost per unit changes with the cost per unit is you are specifically told that is the case. Otherwise you assume that the holding cost per unit stays constant.

Macha says

Thank you very much!

nari says

i understand that the TOTAL cost per ANNUM is cheaper at 5,000 units, however when i first did it i chose 10,000 units because the cost per unit is cheaper at that amount…… at 10,000 its 99.73 while at 5,000 its 199.27.

johnmoffat says

You are dividing by the wrong number of units! You should have divided the total cost p.a. by the total units per year. Over the year we are buying the same number of units in all cases.

nari says

sigh…cant believe i made that error!!

naucelime says

Is it possible for me to save the video after loading it?

johnmoffat says

Sorry, but no. It is the only way that we can keep this website free of charge.

naucelime says

Is it possible after loading the video to save it and viewing it later? internet connection is not good sometimes, thank you

ernamag says

great lecture! I am understanding things i have never understood before.

aubreychipungu says

Wait a minute!! did he just say the best level is 5,000 each time (at the end of the video)??? I thought it just have to be 10,000 units each time (as proved from the calculations, it offers optimal cost). Great lecture it is.

johnmoffat says

Yes – that is what I did say, because the answer is 5,000!

Check again (or look at the answer at the back of our Course Notes). The total cost at 5000 is lower than the total cost at 10000

shajnush says

sir how did i get the discount 98 and 99 percent please… can elaborate for me please

johnmoffat says

The question says that the discounts are 1% and 2%.

If the discount is 1% then it means the cost is 99% of what it was originally.

shajnush says

sir sorry to pain you..that exactly my question if discount 1% how did u get the result cost 99% i mean how you calculate please

johnmoffat says

If there is a discount of 1%, then it means they pay 1% less than the normal price. 1% less means they pay 99% of the price. 2% less means they only pay 98%.

tdcc says

if the holding cost is a fixed cost of say $2,50 per unit and not a percentage of the purchase cost as in this example should the discount still be applied to the fixed holding cost?

johnmoffat says

No. If the holding cost is given as a fixed amount per unit then you assume that it does not change.

tdcc says

Thanks much!

hussain87 says

I don’t understand 23.22 can some help me plz.

johnmoffat says

@hussain87, If you order 10,000 each time then the average inventory is 5,000 units.

There is a 1.5% discount on the purchase price and so the purchase price is $25 – (1.5% x $25). Or….98.5% x $25.

The holding cost is 10% of the purchase price.

(Did you watch the earlier part of the lecture? The same problem occurred (and was explained) for the previous order quantity!

hussain87 says

@johnmoffat, Thanks a lot god bless u.

johnmoffat says

@hussain87, You are welcome