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Reorder cost and holding cost

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Reorder cost and holding cost

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • August 17, 2021 at 5:54 pm #631861
    Syed Ahsan Ali
    Member
    • Topics: 111
    • Replies: 69
    • ☆☆

    Sir, I’m confused here with the EOQ calculation. Please help me on this.

    1) Reorder costs includes all the costs that are related in reordering each order such as delivery cost, installation & inspection cost etc will all be included as total reordering cost?

    For eg, delivery cost $15 and installation cost is $2 and other charges $3.

    Is that correct that we have total reordering cost of $20 in the calculation of EOQ we have to take the total reorder cost.

    2) Similarly, holding costs include costs such as holding the inventory, insurance cost and interest cost of money tied up in inventory.

    If we are given holding cost as $4 with insurance cost as $1.50 and interest cost as $0.50 so in total we will have holding cost of $6 when we will use EOQ formula?

    August 18, 2021 at 7:40 am #631902
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51551
    • ☆☆☆☆☆

    1. Yes 🙂

    2. Yes again 🙂

    (Have you watched my free lectures on the management of inventory?)

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