Thank you for the lecture: its very useful and your lectures are always very clear.

How might we calculate the new EOQ now that we know the 5000>10000 bracket with a 1% discount is more favourable? I understand that 5000 unit batches are more cost effective than the original EOQ of 800 but we have not shown what the new EOQ is.

In this lecture, you said that if given buffer/safety inventory then it must be added to the average inventory when calculating the holding stock which is correct. But sir, in a situation where we are not provided with the unit of buffer, how then do we calculate it. Thanks

Why we decrease holding cost by 10% only in 5000 units and not in 10000 units example?
Should holding cost not be 10% of 25 regardless of the discount applied?

Thank you for this lecture.
Can I ask why when calculating holding cost for 1000 units we do not decrease the price by 10 % but when we calculate holding cost we do?
Is that not the case that in all circumstances holding cost should be 10% of 25?

We don’t decrease the price by 10%. The holding cost is always 10% of the purchases price. However if you read the question in the free lecture notes you will see that if we order more than 5,000 each time then the purchase price falls by 1% and therefore the holding cost is lower by 1%. Similarly if we order more than 10,000 each time then purchase price falls by 1.5% and therefore the holding cost is lower by 1.5%.

I don’t know where you are getting 1,000 units from.

Hii john,
As i have solved the discount questions from the kaplan book, it is totally different ….they haven’t taken the discount on the holding cost as we took …..they are directly taking the holding cost without discounted amt

I cannot comment on what Kaplan has done. What I have done is correct (assuming, of course, that the holding cost is given as a % of the purchase price and not as simply a fixed amount per unit).

The most important thing I learnt is that of a change in policy and taking advantage of settlement discount. Under the change of policy the business should consider both the current and new position for receivables and payables and ascertain any fall or increase to determine the net cost/benefit of the change.

In real life it is likely that a company will be committed to a warehouse already so will have a certain capacity. Therefore EOQ would be irrelevant as purchasing decisions would be based on whether or not there was enough space. Am I correct to think this way?

I can only think EOQ would be useful if additional storage capacity was being considered or if choosing between different products (seeing what levels of each would be more cost efficient for the space available).

We use cookies to improve your experience on our site and to show you relevant advertising.
To find out more, read our updated privacy policy and cookie policy.OkRead more

abokor says

i could’t believe the best accounting lecturers are free.

i took F2,F3,F5, with john moffat and naw F8.

thanks JOHN for the hard times u helped us.

John Moffat says

Thank you for your comment 🙂

abokor says

?

abokor says

u are welcome John

tyroneedwards says

Hi John,

Thank you for the lecture: its very useful and your lectures are always very clear.

How might we calculate the new EOQ now that we know the 5000>10000 bracket with a 1% discount is more favourable? I understand that 5000 unit batches are more cost effective than the original EOQ of 800 but we have not shown what the new EOQ is.

Thanks

Ty

tyroneedwards says

Ignore this. The answer is an obvious one. Thanks.

John Moffat says

No problem 🙂

Ojede says

Hello John,

When adding the “cost of the buffer inventory”, do we add the cost of the entire buffer or must we obtain an average as well?

John Moffat says

We add the whole of the buffer because that is the extra amount held throughout the year.

asher2019 says

In this lecture, you said that if given buffer/safety inventory then it must be added to the average inventory when calculating the holding stock which is correct. But sir, in a situation where we are not provided with the unit of buffer, how then do we calculate it. Thanks

John Moffat says

The question will tell you if there is buffer inventory

asher2019 says

I always love watching your lectures. Thanks for the information.

John Moffat says

Thank you for your comment 🙂

jihane says

I dont why how could I understand this without your videos. you are the best Thanks a lot

Maria says

Hi John

Why we decrease holding cost by 10% only in 5000 units and not in 10000 units example?

Should holding cost not be 10% of 25 regardless of the discount applied?

Thanks

Maria

Maria says

Hi John

Thank you for this lecture.

Can I ask why when calculating holding cost for 1000 units we do not decrease the price by 10 % but when we calculate holding cost we do?

Is that not the case that in all circumstances holding cost should be 10% of 25?

Thanks

Maria

John Moffat says

We don’t decrease the price by 10%. The holding cost is always 10% of the purchases price. However if you read the question in the free lecture notes you will see that if we order more than 5,000 each time then the purchase price falls by 1% and therefore the holding cost is lower by 1%. Similarly if we order more than 10,000 each time then purchase price falls by 1.5% and therefore the holding cost is lower by 1.5%.

I don’t know where you are getting 1,000 units from.

rohanyadav says

Hii john,

As i have solved the discount questions from the kaplan book, it is totally different ….they haven’t taken the discount on the holding cost as we took …..they are directly taking the holding cost without discounted amt

John Moffat says

I cannot comment on what Kaplan has done. What I have done is correct (assuming, of course, that the holding cost is given as a % of the purchase price and not as simply a fixed amount per unit).

Samuel Koroma says

The most important thing I learnt is that of a change in policy and taking advantage of settlement discount. Under the change of policy the business should consider both the current and new position for receivables and payables and ascertain any fall or increase to determine the net cost/benefit of the change.

Samuel Koroma says

Note that this comment relates to receivables and payables management and not inventory as was previously thought

alastairk says

Hi John

In real life it is likely that a company will be committed to a warehouse already so will have a certain capacity. Therefore EOQ would be irrelevant as purchasing decisions would be based on whether or not there was enough space. Am I correct to think this way?

I can only think EOQ would be useful if additional storage capacity was being considered or if choosing between different products (seeing what levels of each would be more cost efficient for the space available).

Be grateful for your thoughts

Thanks

Alastair

John Moffat says

A company would consider taking on more storage space if it meant that their costs overall would be lower.