1. avatar says

    I cant seem to work out the answer. Please help.

    Sky ltd wishes to minimise its inventory costs. At the moment its costs are $10 per order and holding costs are $0.10 per unit per month.Sky ltd estimates annual demand to be 15000 units.

    What is the optimal reorder quantity (to the nearest 100 units)?
    A.500 B.1000 C.1200 D.1700.

    • Avatar of John Moffat says

      You just use the formula on the formula sheet given in the exam.

      D – the annual demand = 15000
      Co – the cost per order = 10
      Ch – the holding cost per unit per annum = 12 x 0.1 = 1.20

      Using the formula you should get the EOQ = 500

      Hope that helps :-)

      (PS This doesn’t actually have anything to do with my lecture on ‘reorder level’. Please in future ask this sort of question in the F2 Ask the ACCA Tutor Forum and I will answer you there :-) )

  2. Avatar of Javeria says

    i just dont understand the requirement of this question ?????????????????????///

    A company purchases 5,000 units per quarter at 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?


      • avatar says

        I am sorry but the total inventory cost = ordering cost + annual holding cost, right? then why the answer is 2,000? My answer is 2,080 which does not exist in the choices. Lol

      • Avatar of John Moffat says

        The EOQ is 400 units (demand = 20,000 per year; holding cost = $5; order cost = $20)

        With an EOQ of 400, it means 50 orders a year, so cost = 50 x $20 = $1,000
        The average inventory is 400/2 = 200, so cost = 200 x $5 = $1000

        So total inventory cost if $2,000.
        I cannot imagine where 2,080 came from.

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