F2 Chapter 5 Questions
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I am stuck on question 3) the answer I am finding is 462.9 which is non of the options on the answers, the formula I used is EOQ= square root 2×10×15000/0.10 (1-15000/1000) = 462.9. I need help on where I could be going wrong with my calculation?
You are using the economic batch quantity formula, but you should be using the economic order quantity formula!
(The economic batch quantity formula is only relevant when we produce our own goods and we know the rate of production, which we do not know here).
The EOQ = sq root ((2 x 15,000 x 10) / (0.10 x 12))
Thank you John Moffat, now I understand.
Great 🙂
I have an exam kit of Kaplan for the year 2015-2016. After watching these lectures, I have been through the exam kit and it has some questions which were not covered in your lecture. Such as a question about Closing balance on the material inventory account, perpetual inventory.
Is it included in the course or not?
At the moment I am just studying opentuition notes and lectures only and have a kaplan exam kit. Will this be good enough?
You should ask this sort of question in the Ask the Tutor Forum, and not as a comment on a lecture.
Our free notes and lectures cover everything needed to be able to pass the exam well.
Obviously they cover things like the closing balance on the inventory account.
We do not claim to cover 100% – for this you would need to buy a Study Text from one of the ACCA approved publishers, and study every page.
As far as passing the exam is concerned, our lectures and notes (together with practicing every question in your Exam Kit) are more that enough to be able to pass the exam well.
I am sorry for asking this sort of question here. I recently started to follow this website and I am happy with the lectures and notes but I was just a bit worried.
Thank you John Moffat.
No problem 🙂
I have a confusion in 2nd question. If ordering cost will decrease i will be placing more quantity order at a time and it will increase my holding cost. So why decrease in answer? Plz help
If the cost per order falls, then the EOQ will fall. Therefore the average inventory will fall and the annual holding cost will fall.
Try putting numbers in the formula for the EOQ and see what happens is Co is lower.
Thank you John Moffat for replying, i gain alot of knowledge from your replies, you’re doing a great job.
However for question 2, I still have just a couple queries as i am basing it on the EOQ formula.
EOQ= ?(2CoD/Ch),
therefore a decrease Co, wouldn’t EOQ be affected like this? EOQ?=?2Co?D/Ch?
(I tried putting in figures and indeed there is a decrease in EOQ, just couldn’t seem to link it with the decrease of holding cost based on the formula)
I am basing it on Algebra though, would be extremely happy if i could have more insight on this.
The holding cost over the year is the average inventory multiplied by the holding cost per unit.
If the order quantity is lower, then the average inventory is lower, and therefore the holding cost for the year is lower. (The holding cost per unit obviously does not change, but the annual holding cost is lower).
how is the annual demand 4×20,000 why not 3×20,000
I assume you are asking about question 1?
If so, then there are 12 months in a year and therefore there are four 3-month periods in one year.