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Inventory costs – Mock exam

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Inventory costs – Mock exam

  • This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • February 22, 2015 at 2:29 pm #229634
    Ieva
    Member
    • Topics: 3
    • Replies: 5
    • ☆

    One more question:

    A company purchases 5000 units per quarter at an even rate throughout the year.
    Each order places with the supplier incurs a delivery charge of $20
    The annual cost of holding one unit in inventory is $5
    What is the minimum total of the inventory costs (order costs + holding costs) per year?

    My workings:
    Re-order costs = 4 x 20 = 80
    holding costs = 5000/2 x 5 = 12500
    Inventory costs = 80 + 12500 = 12580

    But the correct answer is 2000

    Thank you

    February 22, 2015 at 7:24 pm #229660
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    The question does not say that they purchase 5000 a quarter – it says that they use 5000 a quarter.

    To get minimum cost, you need to calculate the economic order quantity (with a demand of 20,000 a year) and then calculate the cost.

    February 22, 2015 at 7:29 pm #229664
    Ieva
    Member
    • Topics: 3
    • Replies: 5
    • ☆

    Oh lack of attention… Sorry for taking your time on such a question!

    February 22, 2015 at 7:39 pm #229672
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    No problem 🙂

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    Posts
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