• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for March and June 2025 exams.
Get your discount code >>

EOQ holding and ordering cost.

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › EOQ holding and ordering cost.

  • This topic has 3 replies, 2 voices, and was last updated 5 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • August 20, 2019 at 5:57 am #528165
    kenneth09
    Member
    • Topics: 7
    • Replies: 4
    • ☆

    Hi, John,

    the question from Kaplan kit:
    The following statements refer to different types of inventory control systems and procedures.
    1. A just-in time system implies relatively low reorder costs.
    2. Periodic review means ordering inventory when it falls below the designated safety inventory level.
    3. Use of the economic order quantity model means that holding and ordering costs should be the same.
    Which of the above statements is/are correct?

    the answer are 1 and 3, I struggled to understand why the holding and ordering cost should be same.

    the explanation is:’holding costs and ordering costs are balanced off, with the EOQ being at the point where these are equal to each other.’

    I thought the main aim for implementing EOQ is to minimise the total cost from ordering and holding, should they necessarily be equal to each other?

    could you explain this, thank you!

    regards.

    August 20, 2019 at 6:28 am #528178
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    Although the object certainly is to minimise the total (holding plus ordering) cost, the minimum total cost will occur when the total holding cost is equal to the total ordering cost.

    You can prove this using algebra, but that is not ever required in the exam. Best is to look at an example (I work through an example in my free lectures) and you will see that at the EOQ the two total costs are the same. If you are still unconvinced then look at the free Paper MA (was F2) lectures on EOQ where I draw the graph of what is happening (because this is really a Paper MA question).

    August 20, 2019 at 7:25 am #528186
    kenneth09
    Member
    • Topics: 7
    • Replies: 4
    • ☆

    I got it! thanks for your help!
    I do feel that the questions in kaplan kit sometimes appear a little tricky and the explanations are always less detailed, lol

    August 20, 2019 at 6:09 pm #528244
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘EOQ holding and ordering cost.’ is closed to new replies.

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • azubair on PM Chapter 15 Questions Financial Performance Measurement
  • Dileena on Sources of finance – Islamic Finance – ACCA (AFM) lectures
  • amaanalli on Governance – ACCA Strategic Business Leader (SBL)
  • nabeelafatima on Using Information Systems – ACCA Performance Management (PM)
  • John Moffat on Irrecoverable Debts and Allowances Example 3 – ACCA Financial Accounting (FA) lectures

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in