Hi?
i would to find out why the period of 3 months was not taken into consideration in comparison to question three where the months were taking into account.thank you

Which question are you referring to? In question 3 there are no 3 month periods. The demand is 15,000 per year and the holding cost is 12 x $0.10 per year because there are 12 months in a year.

The multiplying by 2 is because the formula for the EOQ has a 2 in it.

Did you watch my free lectures before attempting the test?

Sky limited wishes to minimize its inventory cost.
Its recorder quantity 1000units
Order cost 10 per order.
Holding cost 0.10 per month
Estimates annual demand 15000units .

What is the optimal reorder level (to nearest 100 units).

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guyver101 says

In Qu2 when it says “cost of ordering”, this seems a bit ambiguous. I read it as the ‘re-order costs’, but it actually means ‘Purchase cost’.

John Moffat says

It doesn’t mean the purchase cost. It means what it says – the cost of ordering a batch of material, and that is the re-order cost.

safashaikh19 says

sir i dont understand the 3rd question (Sky ltd). why do we 0.10*12 in the formula? and what is the role of the reorder quantity i.e. 1000?

John Moffat says

The current reorder quantity is not relevant because the question asks what will be the optimal (i.e. best) reorder quantity.

For the formula we need the annual (I.e. yearly ) stockholding cost. $0.10 is the cost per month, and so the cost per year is 12 x $0.10.

musalampondo says

Hi?

i would to find out why the period of 3 months was not taken into consideration in comparison to question three where the months were taking into account.thank you

John Moffat says

I don’t know which question you are referring to because two of the questions refer to 3 months people (and question three doesn’t!).

Both questions 1 and 5 have 3 month periods and in both cases the quantity was multiplied by 4 so as to make it a 12 months period.

JoshuaMburu says

Hi, I also don’t quite get it, when multiplied by four, the answer should be 1000 not 500, ?4 = 2

John Moffat says

Which question are you referring to? In question 3 there are no 3 month periods. The demand is 15,000 per year and the holding cost is 12 x $0.10 per year because there are 12 months in a year.

The multiplying by 2 is because the formula for the EOQ has a 2 in it.

Did you watch my free lectures before attempting the test?

John Moffat says

Denny122: The holding cost is on the bottom of the formula. Therefore if the holding cost increases, the EOQ will be lower.

Since the EOQ is smaller, there will have to be more orders placed during the year. Therefore the annual order cost will be higher.

denny122 says

For question 4, I am unsure of why the EOQ costs will be lower when the holding costs increase?

Thank you.

maheracca1 says

I’ve a question

Sky limited wishes to minimize its inventory cost.

Its recorder quantity 1000units

Order cost 10 per order.

Holding cost 0.10 per month

Estimates annual demand 15000units .

What is the optimal reorder level (to nearest 100 units).

John Moffat says

Use the EOQ formula. It is the sq root of (2 x 15,000 x 10) / 0.10

kamariddin says

Sir, you forgot to multiply 0.10 by 12 as we need annual holding cost

John Moffat says

Goops – you are correct. Thanks 🙂

Sahaijsjsjaioafnn says

Ha ha !!! You are Funny.

adnan111 says

In question 5 why is it taking cost of ordering one product 20$ as it is clearly mentioned the purchase price of one product is 15$.

John Moffat says

But is also clearly stated the the ordering cost is $20. This has nothing to do with the purchase price.

You really should watch the free lectures before attempting the test!!

adnan111 says

Why is it taking 6%of reorder cost instead of cost of one unit in question 1.

And how is the answer 1461 instead of 1633

John Moffat says

The answer is not taking 6% of the reorder cost. It is taking 6% of the purchase price of $25.

The answer is 1,461 which is what results from using the formula. I have no idea how you managed to arrive at 1633!

odung says

I want to know how we got 2225 while calculating holding cost. Because we got 1600 then how about 2225?

Thank you.

John Moffat says

You will have to say which question you are referring to.