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Quantity discount

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Quantity discount

  • This topic has 1 reply, 2 voices, and was last updated 10 months ago by John Moffat.
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  • August 19, 2021 at 10:10 am #632080
    Joseph.Andrews
    • Topics: 45
    • Replies: 23
    • ☆☆

    Sir after watching your lecture on chapter 4 of the notes there are few steps given for quantity discounts and it says that:

    1) calculate EOQ ignoring discount
    2) If it is below the quantity which must be ordered to obtain discounts, calculate total annual inventory costs

    [That means that if EOQ units < quantity demand to obtain discounts (i.e. 5000 or 10,000 units) then calculate total inventory costs.

    We already know that if we order EOQ units we have lower reorder cost & lower holding cost and any order quantity above EOQ units will result in higher reorder cost & higher holding cost so we only calculate each order quantity to see how much of the total cost do we save because of discount on purchase price]

    Please do correct me if I write something incorrectly. I know the rest of the steps. Thanks to your lecture 🙂

    August 19, 2021 at 3:09 pm #632143
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49595
    • ☆☆☆☆☆

    What you have written is correct except for one thing – any order quantity above the EOQ will not mean that the annual reorder cost and the annual holding cost will both increase, but that the total of the two will increase 🙂

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