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  1. avatar says

    Mr John,

    Thank you for the lectures. When i was doing a few examples from kaplan study text, I noticed that the the discount was not applied when calculating the holding cost, it was only applied on the purchase cost. So I am a bit confused whether to apply the discount whilst calculating holding cost. Please clarify? Thanks

    • Profile photo of John Moffat says

      It depends how the holding cost is given. If it is given as a $ amount per unit (e.g. holding cost is $2 per unit), then it stays at that amount even if there is a discount on the purchase price.
      If the holding cost is given as a % of the purchase price, then as the discount reduces the purchase price it also reduces the holding cost.

      • Profile photo of S says

        Mr. John,
        Kindly advice me on the following;
        where D= 40,000 Purchase price= $25 Ordering cost= $20 Holding cost= $2.5

        EOQ= 800 units
        Purchase price = $ 1,002,000
        Ordering cost = 8*20 = $ 160
        Holding cost = 10% of 25 of 99% = 2.48* 2500 = 6,187.5

        When we order between 5,000- < 10,000

        Purchase price you have calculated by 40,000*99% *25 = $ 990,000
        But I have calculated in other way 1,002,000*99% = $ 991,980

        Why the difference of $ 1,980 arises?

        I have worked for some other questions both the way I'm getting the same answer.

        Am I going wrong anywhere?

        Please help me

      • Profile photo of John Moffat says

        I don’t know where you have got 1,002,000 from!

        If there is no discount, then if you are buying 40,000 a year at a cost of $25, then the total purchase price is $1,000,000.

        If there is a discount of 1% then the total purchase price is $1M less 1% (or $1M x 99%).

        Also, the total order cost is not $160 a year!! If they are ordering 40,000 a year with an order quantity of 800, then they are placing 40,000/800 = 50 orders a year.

        I do suggest that you watch the lecture again because you seem to be confusing all of the figures.
        The answer and the approach in the lecture is correct!

      • Profile photo of S says

        Thank you Mr.JohnJohn

        I went wrong in calculating purchase price ( It’s only $1m and not $1,002,000)

  2. avatar says

    John, in the exam. at minute 25:00. The holding cost price after discount is 2.4625. Do we have to put it into 4 decimal places or 3? or if there more decimal places, do we have to put all of the numbers?

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