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EOQ with buffer stock

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › EOQ with buffer stock

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by AvatarJohn Moffat.
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  • December 3, 2020 at 10:06 pm #597563
    Avatarinayatacca760
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    Hello sir,

    I am curious about using this EOQ technique when the examiner asks to do comparison about the EOQ model costs and normal cost. In some questions in Kaplan Kit, average inventory plus buffer stock is taken and in some questions, buffer stock is ignored but they have not explained the reason to do it.

    Please explain it to me when to use which and if I use Buffer stock plus avg.inventory for holding cost solely, will it be correct?

    Please specify.

    Thanks in advance.

    December 4, 2020 at 7:47 am #597596
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54836
    • ☆☆☆☆☆

    For the calculation of the EOQ, buffer inventory is irrelevant.

    If asked to calculate the total annual holding cost, then it is the average inventory (EOQ/2) plus the buffer inventory that is multiplied by the holding cost per unit.

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