Dear all,this is the question from ACCA examiners' report Jun'08
A manufacturing company uses 25,000 components at an even rate during a year. Each order placed with the
supplier of the components is for 2,000 components, which is the economic order quantity. The company holds
a buffer inventory of 500 components. The annual cost of holding one component in inventory is $2.
What is the total annual cost of holding inventory of the component?
A $2,000
B $2,500
C $3,000
D $4,000
The Correct Answer is C and the working is as below:-
{[Buffer inventory + (EOQ ÷ 2)] × Annual holding cost per component} which gives
{[500 + (2,000 ÷ 2)] × 2} = 3,000.
Why 2000 have to divide 2?? Plz answer TQ
A manufacturing company uses 25,000 components at an even rate during a year. Each order placed with the
supplier of the components is for 2,000 components, which is the economic order quantity. The company holds
a buffer inventory of 500 components. The annual cost of holding one component in inventory is $2.
What is the total annual cost of holding inventory of the component?
A $2,000
B $2,500
C $3,000
D $4,000
The Correct Answer is C and the working is as below:-
{[Buffer inventory + (EOQ ÷ 2)] × Annual holding cost per component} which gives
{[500 + (2,000 ÷ 2)] × 2} = 3,000.
Why 2000 have to divide 2?? Plz answer TQ