Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › December 2007
- This topic has 5 replies, 2 voices, and was last updated 8 years ago by John Moffat.
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- November 24, 2015 at 7:17 am #284830
Sir can you explain me part b buffer stock I am not so clear about the calculation of December 2007 PKA company./ bop question 21 (b)
November 24, 2015 at 8:38 am #284851Buffer inventory is where they hold extra inventory throughout the year to be safe (to reduce the risk of running out).
In this question they order when they have 35,000 units left in inventory, but on average they only use 25,000 units before the next delivery arrives. So on average they are always holding 10,000 more units than they actually usually need.
It doesn’t affect the EOQ calculations at all, but it does mean that when calculating the total holding cost over the year we need to add on the cost of holding the extra 10,000 units.
November 24, 2015 at 3:49 pm #284931Can we do Q/2*0.50
100000/2*.50
Instead of finding weekly demandNovember 24, 2015 at 4:33 pm #284948No. You need to do it the way that I wrote before 🙂
November 24, 2015 at 5:45 pm #284962Thank you Sir.
Can you please explain me the lead payment calculation in part d of the questionNovember 25, 2015 at 7:26 am #285081Leading is paying early, so the lead payment simply means paying the euros now, instead of waiting until it is due in 6 months time.
So we convert at the current spot.
However, in order to convert now means having to borrow money and so because of the interest the cost in 6 months time will be the money borrowed together with the interest.
(It is, of course, a silly thing for them to do – it would be more sensible to put the euros on deposit rather than pay the supplier immediately (which is what is happening with the money market hedging). Therefore it is not surprising that the lead payment is the most expensive of the three choices.
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