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      • I don’t know what you mean by a ‘review answer’. I work through the example in the lecture, and there is obviously a printed answer in the lecture notes as well.

    • Hi John,

      Thank you for the lecture!

      Just a quick question:

      When we order 5000 units, we get 1% discount, therefore pay 99% of the £25. When we order 10000, shouldn’t it be 2% discount, not 1.5%, therefore its 98% of the £25, not 98.5%?

      Thank you very much!

      • Why on earth should the % given as discount double just because they order more? They do not have to increase the % at all – they could just leave it at 1% for all quantities over 5,000.

        Here, the question says that they offer a 1.5% discount for quantities over 20,000.

  3. I have an issue with Chapter 5, example 3. The question states the “discounts on purchase price”. It does not state however that there would be a discount on the cost of inventory holding. Later, when I compared my answer to the example answer, it shows the inventory holding as well as the purchase cost calculated at 99%, reflecting the discount on both.

    Please let me know what is correct, as there is no logical indicator to flag the deduction on inventory holding within the equation.

    Thanks,

  9. Hello. Thank you so much, I love your lectures. You make things logical and easy to understand. I was going through my previous notes and realized we did not cover buffer and maximum level of inventories calculations in the inventory chapter. Is it because it is covered in F2? (its been a while since I studied F2)
    Many Thanks for changing our lives for better.

  10. Hi Sir,

    Please forgive me but Looking at the answer for Example 3, I would like to know why it has $25 instead of $20 to a purchase cost, could you please explain as I am mixing it up.

    Thanks

    • Hi Susan

      I know I am not Mr. Moffat, but if you look back at Example 1, $20 was the ordering cost whereas $25 is the purchase price of each desk. Now in Example 3, it is stated that “the supplier now offers us discounts on purchase price as follows”.

      I am a student, so thank you for highlighting the importance of reading the question.

      I hope I have been of help.

  12. hello sir..these lectures are very helpful as i am sitting for my exam on 7 December. i have a question. In the bpp book it talks about minimum quantity , maximum quantity, lead time..buffer…its not part of the lecture and i’m worried it will be in the exam as i dont understand it

  15. John,
    Chapter 5, Test Q 4 = Answer says C, however I cannot get to this figure

    2 x 9,000 x 40
    Divded by (8% of 40) 3.2
    sqrt = 464 + 160 (being charge for placing the order)
    obviously does not come to 949
    please could you advice and apologies i fear i should know this… thank you
    sam

  16. Mr John,

    Thank you for the lectures. When i was doing a few examples from kaplan study text, I noticed that the the discount was not applied when calculating the holding cost, it was only applied on the purchase cost. So I am a bit confused whether to apply the discount whilst calculating holding cost. Please clarify? Thanks

    • It depends how the holding cost is given. If it is given as a $ amount per unit (e.g. holding cost is $2 per unit), then it stays at that amount even if there is a discount on the purchase price.
      If the holding cost is given as a % of the purchase price, then as the discount reduces the purchase price it also reduces the holding cost.

      • Thank you very much for taking the time to reply. I understand the logic now. Good day.

      • Mr. John,
        Kindly advice me on the following;
        where D= 40,000 Purchase price= $25 Ordering cost= $20 Holding cost= $2.5

        EOQ= 800 units
        Purchase price = $ 1,002,000
        Ordering cost = 8*20 = $ 160
        Holding cost = 10% of 25 of 99% = 2.48* 2500 = 6,187.5

        When we order between 5,000- < 10,000

        Purchase price you have calculated by 40,000*99% *25 = $ 990,000
        But I have calculated in other way 1,002,000*99% = $ 991,980

        Why the difference of $ 1,980 arises?

        I have worked for some other questions both the way I'm getting the same answer.

        Am I going wrong anywhere?

        Please help me

      • I don’t know where you have got 1,002,000 from!

        If there is no discount, then if you are buying 40,000 a year at a cost of $25, then the total purchase price is $1,000,000.

        If there is a discount of 1% then the total purchase price is $1M less 1% (or $1M x 99%).

        Also, the total order cost is not $160 a year!! If they are ordering 40,000 a year with an order quantity of 800, then they are placing 40,000/800 = 50 orders a year.

        I do suggest that you watch the lecture again because you seem to be confusing all of the figures.
        The answer and the approach in the lecture is correct!

      • Hi Mr John,
        Can you give me some advice on the following?
        QUESTION : A company uses an items of inventory as follows :
        Purchase price: $ 25 per unit
        Annual demand : 1800 units
        Ordering cost : $ 32
        Annual holding cost : $ 4.5 per unit
        EOQ: 160 units
        What is the minimum total cost assuming a discount of 2% given on orders of 300 and over? ( This is the question 6.19 from BPP revision kit)

        My answer is :
        TC= OC+ HC + Cost of inventory
        =D/Q * Co + Q/2 * Ch + D* purchase price
        = 1800/300 * 32 + 300/2 * 4.5 + 1800 * 25 *0.98 = 44,967$
        But their answer is 44,953.5 because there is a little different with my answer. They change total holding cost at a discount 2% . I don’t know why? In the comment lecture you said ” It depends how the holding cost is given. If it is given as a $ amount per unit (e.g. holding cost is $2 per unit), then it stays at that amount even if there is a discount on the purchase price.
        If the holding cost is given as a % of the purchase price, then as the discount reduces the purchase price it also reduces the holding cost. ”

        Please explain it for me.
        Many thanks,
        Thao Huyen

  17. John, in the exam. at minute 25:00. The holding cost price after discount is 2.4625. Do we have to put it into 4 decimal places or 3? or if there more decimal places, do we have to put all of the numbers?

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