Hello, I still do not quite get the correlation between falling/raising prices of inventory and how does this affect the inventory valuation and price inventory valuation using FIFO, LIFO, AVCO’s. Could you please present how does change in price affect the inventory valuation using three/four methods as in let’s say ‘if the inventory price fall which valuation method will show the highest profit ” etc. Somehow this is a very abstract concept to me and I am struggling to gather my head around it and taking MA1 exam on coming Monday!

Is there any particular reason as to why when calculating cumulative weighted average cost we do 40*4.49 = 179.60 rounded off to 180 on the last issue of 140 units.

I ask as when practicing I went and did 140*4.49= 628.60 and when deducting 628.60 form the previous balance of 808 we get 179.40 rounded to 179 which is different.

If the num of units purchased above the annual demand, why we are not using num of units purchase to find the purchase cost but as a Bpp book we using annual demand for calculating a purchase cost in a EOQ

Can you explain the following: what is the effect on EOQ and the total holding cost of a decrease in the cost of ordering a batch of raw materials ? Thanks

You should be able to work this out yourself by looking at the formula!!

If the order cost decreases then the EOQ decreases. If the EOQ decreases then the average inventory decreases and therefore the total holding cost decreases.

Try it yourself by putting numbers in the formula and see what happens 🙂

I am preparing to take the F2 CBE in February, I started revising in Novemeber and this video and chapter was not included in your materials in Dec 2016?? Is the syllabus the same for the February exam as the march exam?

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zolty says

Hello, I still do not quite get the correlation between falling/raising prices of inventory and how does this affect the inventory valuation and price inventory valuation using FIFO, LIFO, AVCO’s. Could you please present how does change in price affect the inventory valuation using three/four methods as in let’s say ‘if the inventory price fall which valuation method will show the highest profit ” etc. Somehow this is a very abstract concept to me and I am struggling to gather my head around it and taking MA1 exam on coming Monday!

wangob says

In Avco I agree with thus

80 × 4.35 = 348

But i do not agree with this

40 × 4.49 …

Because it should be 140 .. as same as you took 80 × 4.35…

John Moffat says

40 are the number of units that are left in inventory at the end, and they are valued at 4.49 each.

I suggest that you watch the lecture again (and study the answer in the lecture notes).

wangob says

Ok thanks sir got it .

1jaypatel says

Is there any particular reason as to why when calculating cumulative weighted average cost we do 40*4.49 = 179.60 rounded off to 180 on the last issue of 140 units.

I ask as when practicing I went and did 140*4.49= 628.60 and when deducting 628.60 form the previous balance of 808 we get 179.40 rounded to 179 which is different.

Is there a right and wrong way?

1jaypatel says

Sorry realized my own mistake. I should have done 808.20 – 628.60 which = 179.60 also.

:-\

John Moffat says

I am pleased you sorted it 🙂

caolanfinegan says

My bad. I’ll ask this on chapter 6.

thiwanka says

If the num of units purchased above the annual demand, why we are not using num of units purchase to find the purchase cost but as a Bpp book we using annual demand for calculating a purchase cost in a EOQ

John Moffat says

In the long-term the purchases each year must be equal to the annual demand (otherwise inventories would get higher and higher, which would be silly).

Therefore we always use the annual demand to calculate the EOQ – just as I do in my lectures.

I don’t know why you are asking this under this lecture, which is nothing to do with the EOQ.

ezejay2011 says

Can you explain the following: what is the effect on EOQ and the total holding cost of a decrease in the cost of ordering a batch of raw materials ? Thanks

John Moffat says

You should be able to work this out yourself by looking at the formula!!

If the order cost decreases then the EOQ decreases.

If the EOQ decreases then the average inventory decreases and therefore the total holding cost decreases.

Try it yourself by putting numbers in the formula and see what happens 🙂

adi141 says

Hello

I am preparing to take the F2 CBE in February, I started revising in Novemeber and this video and chapter was not included in your materials in Dec 2016?? Is the syllabus the same for the February exam as the march exam?