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November 26, 2021 at 2:22 pm
Greetings sir. I wanted to pass on to you an easy way to teach everyone how to remember the EOQ formula. I got it from one of my teachers in the past.
It would be the way you would order at a Fish & Chips Restaurant 🙂 :
2 COD fish / 1 CHips please.
I hope you benefited.
Wish you the best.
John Moffat says
November 26, 2021 at 3:48 pm
Thank you, but you do not need to remember the formula because it is given to you in the exam!! See the formula sheet in our free lecture notes.
November 26, 2021 at 6:12 pm
I know that. Just a help for anyone who wanted to remember it the easy way. Goodbye.
November 12, 2021 at 5:31 pm
I have a question….Example 2 says – “calculate the inventory costs for this order quantity”. Shouldn’t we also include purchase costs as it is also an inventory cost? I do get when it said that purchase costs doesn’t make a difference if there are no discounts or something but the question clearly says to calculate inventory costs……
May 9, 2021 at 11:59 am
I had a doubt. In the example which we solved wherein we were supposed to calculate inventory cost for different order quantities. In that, while calculating holding cost, why did we multiply the average inventory by 10% of $25 (the price of each desk). Holding cost is 10% PER ANNUM. Won’t multiplying 10% to each desk’s price be wrong?
May 9, 2021 at 3:31 pm
If we are costing over a year (as we usually are) then it is correct to take 10% of $25. From day to day the inventory levels (and therefore the holding cost will be higher and lower). However we are multiplying the average inventory (the average level held throughout the year) by the $2.50 per unit.
October 19, 2020 at 2:47 pm
This is an amazing site, and amazing tutor. Clear, straight-forward, calm explanation of each topic. I’ll recommend to everyone. Honestly 1st time i’m donating a site voluntary.
September 30, 2020 at 4:18 am
Hello! At the beginning of this chapter we said that there are 3 costs in inventory holding system: 1) the purchase cost 2) the reorder cost and 3) the inventory cost. Why we did not include the purchase cost in our examples when we calculated inventory costs?
September 30, 2020 at 8:09 am
Because it is not affected by the order quantity except when there are quantity discounts as explained in the next lecture.
February 8, 2020 at 9:07 pm
I have a question about example 1, why do you ues units divided by 2 when you calculate the carrying cost? I’m not sure why it’s an average?
February 8, 2020 at 9:43 pm
As the graph you draw near the start of the lecture shows, the new 1000 units are added after each use. The first time you put 1,000 units in the warehouse, Inventory holding cost is created, and even after you run out of units, the next 1,000 units are added. Why not calculate the maximum Inventory holding cost and use average instead?
June 1, 2020 at 8:42 am
There are times that your warehouse not holding the maximum 1000 units, so that cost during these times might get smaller value (10% of the current units in the warehouse)
That is the reason why we should take the average value of units
June 1, 2020 at 9:59 am
November 27, 2019 at 11:10 am
hello sir :))
in your example, when asked fr the total inventory cost, you only included the holding cost and ordering cost. However, in the kaplan books, they include purchase cost as well.
which should we follow when asked in the exam??
November 27, 2019 at 2:22 pm
It depends what the question asks for. If it is not clear, then for multiple choice questions it will be obvious from the choices given. In other questions the computer would mark either correct.
November 27, 2019 at 5:48 pm
i see. thank you :)) the videos are very helpful
November 19, 2019 at 6:21 am
I dont understand that why we take avg inventory not the 1/3 or 1/4 etc?
November 19, 2019 at 9:52 am
Because the level of inventory fluctuates between the order quantity and zero units. Therefore the average inventory throughout the year is half the order quantity.
I illustrate this with a graph near the start of the lecture.
November 18, 2019 at 5:20 pm
Great lecture. thanks.
November 18, 2019 at 6:23 pm
Thank you for your comment 🙂
September 17, 2019 at 2:15 pm
For the holding cost; why is it that we divide the order quantities by 2?
September 17, 2019 at 3:41 pm
September 17, 2019 at 7:23 pm
Oh I see now. Thank you sir.
September 18, 2019 at 7:23 am
You are welcome 🙂
November 10, 2019 at 7:53 am
We are assuming that half of the inventory is always there in our storage?
could you please elaborate on the average. if its an assumption its totally fine i get that but practically its not like that or is it?
why are we taking avg. only, it be any other ratio let say 1/3 or 1/4 of order quantity?
thanks in advance.
November 10, 2019 at 10:27 am
We are certainly not assuming that half of the inventory is always there!!
Immediately after a new delivery is received then the inventory will be the amount ordered. This inventory is used up over time and falls to zero immediately before the next order is received. So the level of inventory is fluctuating between the full order amount and zero. On average it will therefore be held way between the two.
Please watch the start of the lecture again where I illustrate this with a graph.
November 11, 2019 at 6:25 am
That is true the inventory will be between the two levels but i think we can not simply take avg. lets say we reorder at 10 units in inventory considering buffer inventory. total need is 100 units every month. practically we wont let the inventory reach zero right. for sake of MA we are assuming inventory reached zero.
so in the above example we will be holding 100 units but we can not simply take 45 just because on average we are holding between 0 to 90 as the inventory is fluctuating between 0 and 90.
i did watch that illustration but i am still confused, as we are just placing line in between to define that on average.
really appreciate your help.
November 11, 2019 at 9:46 am
If we hold buffer (or safety) inventory, then the average inventory will be higher by the amount of the buffer. However this will not effect the calculation of the EOQ.
July 21, 2019 at 1:24 am
I don’t really understand eoq discount calculation pls can u help me out
July 20, 2019 at 8:25 am
Sir, thank you so much for the great lecture!! 🙂
July 20, 2019 at 8:50 am
June 1, 2019 at 8:24 am
Thank you. Very Clear clarifying.
After I watch lectures I get it. Although when I read from BPP Study book, I get confused. I don’t know whether they give hard examples and question or the exam standart is like that.
June 1, 2019 at 11:55 am
The lectures cover everything needed to be able to pass the exam well.
However you must also buy a Revision Kit from one of the ACCA approved publishers – they are full of exam standard questions for practice, and practice is vital to passing the exam.
May 20, 2019 at 11:53 pm
I don’t get the concept of average inventory…
May 21, 2019 at 7:39 am
The level of inventory will fluctuate throughout the year. It will be high every time a new order is received, and will then go low as the inventory is used. The cost of holding it will therefore be high when the inventory is high, and will be low when the inventory is low. So we base our costing on the average level throughout the year – half way between the highest level and the lowest level.
May 25, 2019 at 1:09 am
Thank you for the response…I get it now…
May 25, 2019 at 9:53 am
April 19, 2019 at 11:29 am
Very good understanding
April 19, 2019 at 3:23 pm
March 26, 2019 at 10:48 pm
Thank you Sir!
March 27, 2019 at 8:01 am
February 24, 2019 at 2:24 pm
kirimi: Thank you for your comment 🙂
February 24, 2019 at 11:45 am
I really liked this video. Simple and easy to understand.
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