Inventory Management – Quantity discounts – ACCA Financial Management (FM)
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Thanks for you support overall Instructor, Wish I learn more about ACCA for my Skill.
Hello Sir,
I’m a little confused on the difference between inventory costs and total annual inventory costs. So according to what you’ve taught, inventory costs =Reorder cost +holding cost. Then total annual inventory costs = Reorder cost+holding cost+purchase cost.
Is that correct ?
That is correct 🙂
For the 10%, if we are reducing this due to the discount should it not be 9%. Where did the 99% come from unless you were using a 100%?
10% is the interest cost.
If there is a discount of 1%, then the cost per unit is only 99% of the original cost. (%’s are always based on 100)
Love the example very clear and to the point. Quick question, This method does not account for opportunity cost and seasonal factors does that mean its not practical to use EOQ in real life ? Is there a method that account for opportunity cost and seasonal factors ?
I do not have the BPP Study Text (only the Revision Kit) and so I cannot comment on what is in their text.
The holding cost of the money spent is based on the net cost of the goods (after any discount) and is therefore as shown in my lectures.
Thank you sir! Another informative lecture.
Thank you for your comment 🙂
Good day sir 🙂 Thanks for the lecture.
Do you mind explaining why would we include the discount in the holding cost? I thought there should be 2 different parties who supply us the inventory and hold the inventory?
Do we assume the supplier hold the inventory for us?
As I do explain in the lecture, the holding cost is the interest cost of the money spent buying the goods. The discount from the supplier reduces the net cost of the goods and therefore reduced the interest cost.
Thanks for the explanation but in the BPP text book it doesn’t reduce the discount % when calculating holding cost. its really confuse me which one method should I follow!