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.
mcasasays
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 Β£25. When we order 10000, shouldn’t it be 2% discount, not 1.5%, therefore its 98% of the Β£25, not 98.5%?
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.
I have an issue with Chapter 5, example 3. The question states the βdiscounts on purchase priceβ. 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.
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.
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.
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.
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
If you mean the lecture, then no – lectures cannot be downloaded. They can only be watched online. It is the only way that we can keep this website free of charge.
I can only imagine that it was an advert. We do not offer OpenTuition audiobooks.
cannzsays
I find the lectures very helpful.I am confuse about the purchase and order cost both are buying then why cost is different?please help me out .thank you
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
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.
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 donβt know why? In the comment lecture you said β 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. β
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?
kaseem1 says
HOW do u know that when to use 99% and when to use 10% cuze sometimes i don,t get it
kaseem1 says
Oh damn i got it after Replaying again an again Thanks but a review answer would be better
John Moffat says
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.
mcasa says
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 Β£25. When we order 10000, shouldn’t it be 2% discount, not 1.5%, therefore its 98% of the Β£25, not 98.5%?
Thank you very much!
John Moffat says
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.
loukasierides says
excellent lecture thank you
John Moffat says
Thank you for your comment π
caolanfinegan says
I have an issue with Chapter 5, example 3. The question states the βdiscounts on purchase priceβ. 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,
caolanfinegan says
Holding price of 2.5 is calced as a % (10) of the unit cost. Thus, a lower unit cost would result in a lower holding cost. No need to explain. Thanks.
John Moffat says
Correct π
glaserrose says
sir the way you explained this lecture is excellent very easy to understand thank you .
John Moffat says
Thank you for the comment π
christina14 says
Hello Thank you very much Inventory control seem very clear and logical now. Again Thank you
aigreen says
Never mind. Not 0 to 5000, but 0 to < 5000.
aigreen says
Why 5000 and not 5001?
Jamie says
Really enjoy your lecture, better than my college teacher for F5 and F7. Looking forward to learning the whole F9 lecture. Thank you very much john!!!
John Moffat says
Thank you for the comment π
madihaf92 says
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.
suzzgold says
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
shuv27 says
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.
salman says
tz is just awesome?
John Moffat says
Thank you π
simranflora85 says
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
John Moffat says
They are less important, but are covered in the F2 Revision Lectures.
simranflora85 says
thank you so much
so are they likely to come in the exams?
John Moffat says
Possibly, but not as likely as EOQ calculations.
simranflora85 says
okay.. thank you so much sir π
John Moffat says
You are welcome π
kazilala says
Ive been trying to download the Audiobook without success.Is there another way I could download it online?
John Moffat says
If you mean the lecture, then no – lectures cannot be downloaded. They can only be watched online. It is the only way that we can keep this website free of charge.
kazilala says
No theres an option on the page advertising the use of an Audiobook
John Moffat says
I can only imagine that it was an advert.
We do not offer OpenTuition audiobooks.
cannz says
I find the lectures very helpful.I am confuse about the purchase and order cost both are buying then why cost is different?please help me out .thank you
John Moffat says
Purchase cost is the amount being charged for the goods themselves.
Order cost is the cost of actually making the order (for example, the cost of delivery; the cost of the paperwork involved in placing an order).
cannz says
thank you for making me clear about my confusion
aliimranacca007 says
Sir you told that discount also effect on holding cost but bpp kit Q 29 zps co discount only effect on purchase cost ..
John Moffat says
If you are certain that is the case (because I do not have the BPP book) then they have made a mistake.
Sam says
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
John Moffat says
Your mistake is the order cost.
It should be 2 x 9,000 x 160 (not 40)
Divide by 3.20
So square root of ((2 x 9,000 x 160) / 3,20 ) = 949
Sam says
Thank you…
Naseef says
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
John Moffat says
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.
Naseef says
Thank you very much for taking the time to reply. I understand the logic now. Good day.
sivarubini says
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
John Moffat says
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!
sivarubini says
Thank you Mr.JohnJohn
I went wrong in calculating purchase price ( It’s only $1m and not $1,002,000)
thaohuyen67 says
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 donβt know why? In the comment lecture you said β 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. β
Please explain it for me.
Many thanks,
Thao Huyen
John Moffat says
Please ask in the F2 Ask the Tutor Forum – not as a comment on a lecture.
thaohuyen67 says
Yes,I’ll learn from experience for next time , thank for your answering in the F2 Ask the Tutor forum.
John Moffat says
No problem π
protoblade says
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?
John Moffat says
For an exercise on quantity discounts it is best to use the exact figure.