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EQO

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › EQO

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • July 15, 2021 at 3:29 am #627784
    Nikitagarwal
    Participant
    • Topics: 153
    • Replies: 146
    • ☆☆☆

    Hello Sir,
    Hope you are doing great 🙂
    Ques – Plot Co sells Product P with sales occurring evenly throughout the year.
    Product P
    The annual demand for Product P is 300,000 units and an order for new inventory is placed each month. Each order
    costs $267 to place. The cost of holding Product P in inventory is 10 cents per unit per year. Buffer inventory equal
    to 40% of one month’s sales is maintained.
    – What is the total annual cost of a policy based on using the economic order quantity (EOQ)
    My question – While calculating the avg inventory why is the buffer inventory still 10k shouldnt it change with the change in EOQ ?
    PS : This a question from BPP exam kit

    July 15, 2021 at 7:13 am #627802
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51576
    • ☆☆☆☆☆

    No – the buffer (or safety) inventory does not change. They will hold 10k more than in theory they actually need, throughout the year.

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