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ACCA MA · Guided practice (Show me how)

Chapter 6: Inventory Control

Economic order quantity and the cost of holding inventory

Rafael has demand for 40,000 desks a year and the purchase price of each desk is $25.

There are ordering costs of $20 for each order placed. Inventory holding costs amount to 10% a year of inventory value.

The EOQ formula, which is given to you in the exam, is EOQ = the square root of (2 x Co x D / CH), where Co is the fixed cost per order, D is the annual demand and CH is the inventory holding cost per unit per annum.

  1. (a) The economic order quantity

    Calculate the inventory holding cost per desk per year and Rafael's economic order quantity.

  2. (b) Total inventory costs at the EOQ

    Calculate the total inventory costs for the year at that order quantity.

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