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Hi
I can not understand why they are dividing the holding cost by 2 in the answer for June 2012 question 4. I have read the question about 6 times I it says nothing about the length of time the holding costs are held for, so I assumed it is for a year.
Question : https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012/june2011q.pdf
Answer: https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012/june11ans.pdf
Thanks
I think you’re referring to the averaging of order quantity? You’d always need to do this to arrive at your holding cost….
Dear Seanog91,
The formula to calculate the holding cost is = EOQ Units / 2 x holding cost per units
sanjacs: please don’t answer in this forum because it is the Ask the Tutor Forum and you are not the tutor 🙂
seanog91: it is not the holding cost that is divided by 2.
The total holding cost over the year is the average inventory throughout the year, multiplied by the holding cost for 1 unit for 1 year.
The average inventory is always the order quantity divided by 2.
(For an explanation as to why, I really do suggest that you watch the free lectures on inventory control. The Paper F2 lectures on inventory control are also listed along with all the free Paper F9 lectures (because it is revision of F2).)
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