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

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July 7, 2016 at 1:42 pm #324826
kirit
Member
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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
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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
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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
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