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Accounting for materials question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Accounting for materials question

  • This topic has 3 replies, 2 voices, and was last updated 6 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 5, 2018 at 10:25 pm #476579
    shyvenx
    Member
    • Topics: 6
    • Replies: 4
    • ☆

    A manufacturing company uses 25000 components of an even rate during a year. Each order placed with the supplier of the components is for 2000 components, which is the economic order quantity. The company holds a buffer inventory of 500 components. The annual cost of holding one component in inventory is $2.

    What is the total amount of holding inventory of the component ?
    A. $2000
    B. $2500
    C. $3000
    D. $4000

    How is the answer “$3000”, sir can you explain me, please? I’ve got $2500

    October 6, 2018 at 11:52 am #476610
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54705
    • ☆☆☆☆☆

    The average inventory is 2,000/2 = 1,000 plus that buffer/safety inventory of 500. So a total of 1,500 units.

    Therefore the total holding cost is 1,500 x $2 = $3,000 per year.

    October 6, 2018 at 8:57 pm #476650
    shyvenx
    Member
    • Topics: 6
    • Replies: 4
    • ☆

    Okay, thanks !

    October 7, 2018 at 9:33 am #476689
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54705
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Accounting for materials question’ is closed to new replies.

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