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Greetings, I don’t understand how the inventory holding cost was calculated in Example 4. May I please get help?
I’d also like some clarification on the reorder level equation in Example 4. It says “reorder level= demand over lead time” but the two figures are then multiplied and not divided. How does this work?
Thank you
In example 4, the question says that the holding cost is 10% of inventory value. Since the cost per unit is $30, the holding cost is 10% x $30 = $3 per unit per year.
I assume your second question is referring to example 5 (not example 4). Given that the time between placing an order and receiving the order is 5 weeks, and given that the demand is 100 units per week, they need to order when they still have 5 x 100 = 500 units in inventory so as to ensure that they do not run out of inventory.
I do work through all of the examples in the free lectures, and you should not use the lecture notes without watching the lectures. They are only lecture notes and it is in the lectures that I explain and expand on the notes.
If you are not watching the lectures for any reason, then you need to buy a Study Text from one of the ACCA approved publishers and study from there.
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