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polly 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.

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 )

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?

$2,000

$1,000

$15,000

$8,000

John Moffat says

The minimum inventory costs occur at the EOQ.

So you need to calculate the EOQ using the formula, then you need to calculate the total inventory costs.

socheatahr 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

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.

Emily says

Thank you!!