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EOQ

Ccherryblossom12y ago
Dear sir, I have a problem regarding the math below- Monthly demand for a product is 10000 units. The purchase price is $10/unit and company's cost of finance is 15% pa. Warehouse storage costs per unit pa are $2/unit. The supplier charges $200 per order for delivery. Calculate the EOQ. Now, why the holding cost in the ans. is not $2 only but ($10x0.15)+$2 = 3.5 ?
John MoffatJohn MoffatTutor12y ago#1
The cost of finance is a cost of holding inventory (the more inventory you have, the more money is tied up and is losing interest).
Ccherryblossom12y ago#2
Oh...I got it. Thanks!
John MoffatJohn MoffatTutor12y ago#3
You are welcome :-)
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