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Sir in this question i took holding cost as 0.63(which is mentioned in the tutorial note of the answer in acca model answer key)
What really my doubt is that if we take the finance cost in holding cost…then di we need to also include the reduction in Finance cost by reduction of overdraft or not?
What I believe is that as we include the finance cost in holding cost we Do Not need to separatley include the finance cost saving of 13650…as it would already have been included in the holding costIt’s like if i take holding cost of 0.63
Then eoq would be
[2×1500000×252/0.63]^0.5=34641
Ordering cost=1500000/34641*252=10912
Holding cost=34641/2*0.63=10912And on the basis of older reorder quatity
Holding cost=62500*0.63=39375
Order cost=3024So total savings
[39375-10912]+[3024-10912]=20575
And the savings in finance cost will not be considered as it is included in holding costIt says in the answer:
Tutorial note: It would also have been acceptable to revise the holding costs in (ii) and (iii) to reflect the finance cost of holding inventory (e.g. $0·63 in (ii)) and this approach could be awarded full credit if correct.
So obviously using 0.63 as the holding cost will give a different answer, but the examiner made it clear that the different answer would also get full marks.
Yes sir but i just wanted to confirm whether i did it right or not
If we take holding cost as 0.63 and hence include finance cost in holding cost then do we need to separately need to include the savings in overdraft interest separately or not?
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