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My Question is in ref to Q7 of the BPP P&R kit. In part (a), pertaining to avg inv held, why is the 50 000 divided by 2, & why do they not multiply the $4459.10 by 5.11 as we are looking for an annual figure???
Thanks
Farhana
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Hi Farhana,
(1) re: why is the 50 000 divided by 2
Inventory Management under F9 and the EOQ model assumes that only 3 costs are relevant when calculating the Total Stock Costs pa. They are: OC (order costs), HC (holding costs) and PC (purchase costs). Note: purchase costs are only relevant if DISCOUNTS are available.
To calculate HC (the total holding cost pa) you multiply the average number of units held in stock by the cost pu of holding that stock.
If we ASSUME that stocks are used at a steady rate throughout the year then it follows that we can calculate the average number of units held in stock at any one time as the Order Size divided by 2. So in the case of TNG, this is 50,000 units ordered / 2
(2) re: the $4459.10 by 5.11
This part of your question makes no sense to me – have you stated your question here as you intended? Perhaps you need to re-phrase?Hope this helps, Kevin
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