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ANNUAL HOLDING COST

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › ANNUAL HOLDING COST

  • This topic has 3 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • December 10, 2015 at 3:57 am #290025
    thaohuyen67
    Member
    • Topics: 23
    • Replies: 30
    • ☆☆

    Hi,
    Can you give me some advice on the following?
    QUESTION : A company uses an items of inventory as follows :
    Purchase price: $ 25 per unit
    Annual demand : 1800 units
    Ordering cost : $ 32
    Annual holding cost : $ 4.5 per unit
    EOQ: 160 units
    What is the minimum total cost assuming a discount of 2% given on orders of 300 and over? ( This is the question 6.19 from BPP revision kit)

    My answer is :
    TC= OC+ HC + Cost of inventory
    =D/Q * Co + Q/2 * Ch + D* purchase price
    = 1800/300 * 32 + 300/2 * 4.5 + 1800 * 25 *0.98 = 44,967$
    But their answer is 44,953.5 because there is a little different with my answer. They change total holding cost at a discount 2% . I don’t know why? In the comment lecture you said ” It depends how the holding cost is given. If it is given as a $ amount per unit (e.g. holding cost is $2 per unit), then it stays at that amount even if there is a discount on the purchase price.
    If the holding cost is given as a % of the purchase price, then as the discount reduces the purchase price it also reduces the holding cost. ”

    Please explain it for me.
    Many thanks,
    Thao Huyen

    December 10, 2015 at 7:57 am #290079
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54684
    • ☆☆☆☆☆

    BPP should not have changed the holding cost – it should stay at $4.50 per unit.

    It is one of the errors in the BPP Revision Kit. Your answer is correct.

    December 11, 2015 at 8:10 am #290829
    thaohuyen67
    Member
    • Topics: 23
    • Replies: 30
    • ☆☆

    Thank you very much 🙂

    December 11, 2015 at 9:28 am #290852
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54684
    • ☆☆☆☆☆

    You are welcome 🙂

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    Posts
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