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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA โ FIA FMA › inventory & EBQ
Hi Sir,
Please help me to solve this questions, thanks in advance ๐
1) A company purchases 5000 units /quarter at even rate throughout the year.
Each order placed 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 plus holding cost) per year? The answer is $2000.
2) A company manufactures a component for one of its products. it uses 6000 of these components evenly throughout the year. Each component costs $20 to manufacture. In addition there is a cost of $600 to set-up the machines each time a batch of the compenents is manufactured. The holding cost per unit $2. The company can produre the components at the rate of 5000 per month. What is the EBQ that should be manufactured each time? Answer is 2000 units.
*this question i cannot get this answer, i think i put wrong figure at EOQ method.Please kindly advise & show the the calculation method. Thanks in advance ๐
1) You need to use the EOQ formula from the formula sheet.
D = 4 x 5000 = 20,000; Co = 20; Ch = 5.
So EOQ = 400
Total order cost = 20,000/400 = 50 orders x $20 = $1,000 per year
Total holding cost = 400/2 = 200 ave inventory x $5 = $1,000 per year
So total inventory costs = $2,000
2) You need to use the EBQ formula from the formula sheet
D = 6,000; Co = 600; Ch = $2; R = 12 x 5000 = 60,000.
EBQ = 2000 units
Thanks a lot ๐
You are welcome ๐