A retailer has a steady demand for 600 units a year. Each unit costs the retailer RM20. The
costs of ordering are RM100, regardless of the size of the order. The cost of holding a unit in
stock is 40 per cent of its value per year. What order size will minimise total inventory (stock)
cost, and what is the minimum total annual stock cost?
ANS: EOQ IS 123 UNITS, Total inventory is 12979.81
But i cant calculate this ans
Ask the Tutor ACCA MA
EOQ
6y ago#1You use the formula given on the formula sheet in the exam.
The EOQ is the square root of (2 x D x Co) / Ch, where D = 600, Co = 100, and Ch = 40% x 20 = 8. If you put those in the formula then the EOQ = 122.47.
The order cost over the year is (600/122.47) x 100 = 489.92
The holding cost over the year is 122.47/2 x 8 = 489.88
The purchase cost over the year is 600 x 20 = 12,000
The total of the three is 12,979.80
This is all explained in my free lectures on inventory. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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