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.

    • Avatar of John Moffat says

      Inventory control techniques are examinable in Paper F9 as well as in F2.
      Certainly reorder levels are unlikely, but it is so little that it is better to be safe than sorry.
      The rest of inventory control certainly does get examined.

    • Avatar of John Moffat says

      If you go to the F9 page you will find a link to all the F9 lecture available.

      (Lectures can only be viewed online – only Course Notes are downloadable – it is the only way that we can keep this website free of charge.)

      • avatar says

        I have downloaded the notes and printed them. Section on EBQ and reorder level are missing. It is only EOQ and JIT in the notes.

        John would You mind going to the notes and double checking what we are saying please?

        I really appreciate these lectures and am enjoying this course. Thank you so much.

      • Avatar of John Moffat says

        EBQ and reorder levels are examinable in Paper F2 and are in the F2 Course Notes.

        They are not examinable in Paper F9 which is why they are not mentioned in the Paper F9 material.

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