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Dear Mr John,
A question form F2 mock exam:
5000 units per quarter purchased over a year,
Each order incurs a delivery charge of $20
Annual cost of holding one unit in inventory is $5
Calculate the minimum total of the inventory cost p.a
My solution:
Reorder cost=20* 4=80
Holding cost = 5000/2*5=12500
Total inventory cost =80+12500=12580
Why the answer is 2000?you are wrong.
re order cost is 20000 x 20 divided by 400= 1000
holding cost is 400 x 5 divided by 2 = 1000
Total inventory cost 2000good luck
coldett: thank you for answering, but please do not answer in this forum – it is Ask the Tutor (and you are not the tutor 🙂 )
Please restrict yourself to answering in the general F2 forum.Grace:
You have misunderstood the question. 5000 units a quarter means that they are buying 20,000 a year, but it does not mean that they are ordering 5000 each time (simply that they need 5000 a quarter).
The amount they will order each time comes from the EOQ formula and is 400 units.
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