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Hi, sir.
When I’m trying to do the practice questions in the course notes, I found myself confused by the answers for Q3 & Q5 (page176 & page 179). Would you please kindly answer my below questions?
For the Q3 part (b) with orders size discount, the answer starts with a new EOQ calculation. But as I recall from the lecture, we just need to try the minimum order size from each discount level and compare the results. So, my question is do I need to calculate a new EOQ with a order size discount or just follow the lecture?
As for the Q5 part (b) policy 1 selling securities, I think the cost of giving up the short-term security is: 25000*12%*(6/6+5/6+4/6+3/6+2/6+1/6)=10500, because it is sold periodically. But the answer gives “making periodic sales from the portfolio during the year lowers the returns to [1.5m/2] * 12% = 90000”, which means the cost is 180000-90000=90000. Could you please tell me where am I wrong about it? Thank you.With regard to Q3, the original EOQ already falls within a discount band and so the holding cost per unit is slightly different. We therefore need to recalculate the EOQ before continuing and checking the higher levels that attract a higher level of discount.
For Q5, since they are selling 25,000 each time, there will be 60 sales during the year (1.5M / 25,000).
So….to do it your way, you would have to take 25000*12%(60/60+59/60+58/60………+1/60). The method in the answer is a little easier 🙂Dear Mr. Moffat, thank your very much for your detail answers. Big fan of your lecture!
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