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Accounting for Inventory/Materials- Cost of Placing an Order Exam Question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Accounting for Inventory/Materials- Cost of Placing an Order Exam Question

  • This topic has 2 replies, 2 voices, and was last updated 6 years ago by John Moffat.
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  • Author
    Posts
  • July 7, 2016 at 1:42 pm #324826
    kirit
    Member
    • Topics: 22
    • Replies: 33
    • ☆☆

    Good afternoon John,

    I’m stuck on this Exam Kit question and really need your help please.

    Purchase price of an inventory item is $42 per unit
    In each 3 month period the usage of the item is 2000 units
    AHC associated with 1 unit is 5% of the purchase price
    EOQ is 185 units

    What is the cost of placing an order to 2 decimal points

    So I started off as follows:
    AOC=D/Q x Co
    EOQ= 2x CoD /Ch and then square root

    D=2000 x 4=8000 units
    Q=185 units
    Ch= 0.05 x $42 = $2.1

    Im now very stuck and confused. I know that I need to re-arrange the above information but I don’t know how to. Can you please help me. Thanks

    July 11, 2016 at 9:12 am #325335
    kirit
    Member
    • Topics: 22
    • Replies: 33
    • ☆☆

    I’m very grateful to you for your help so far with the other questions that I have requested help with.

    I would be really grateful if you could kindly assist me with the above question that I have unfortunately become stuck with. Thank you

    July 11, 2016 at 6:18 pm #325477
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51571
    • ☆☆☆☆☆

    Since the EOQ is 185 units, using the formula gives:

    185 = sq root of ((2 x 8,000 x Co) / 2.1)

    If you square both sides, then:

    34,225 = (16.000 x Co) / 2.1

    So:

    Co = 34,225 x 2.1 / 16,000 = $44.92

  • Author
    Posts
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