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Forums › ACCA Forums › ACCA MA Management Accounting Forums › Urgent “Economic Order Quantity” Please Help
I am sharing in here a question of my assignment please help me out in this
Ch……$1.75/unit
Co……$225
Annual Demand 10000 units.
Purchase price $20/unit
EOQ ?
supplier is offering the discount on bulk purchases
Details are
10000 units
EOQ=Square root of (2CoD/Hc)
= square root of (2x225X10000/1.17)
=1500
cost using this approach (assuming business continuing therefore allowing calculation of fractions of orders)
=unit cost + holding cost + ordering cost
unit cost =20×10000
holding cost=1500/2 x 1.75=1312.5
no. of orders a year =10000/1500=6.6666666 orders a year
so ordering cost =6.66666…x225=1500
total cost=200000+1312.5+1500=202812.5 per year
calculation as above for discounts but assuming maximum of 10000 annual demand is maximum stock needed
1000 units
no. of orders=10 since 10000/1000=10 orders per year
ordering cost =225×10=2250
holding cost=1000/2 x 1.75=875
unit cost=200000 as above
total cost =203125
For 2500 units
unit cost=10000×18.25=182500
no. of orders a year=10000/2500=4 per year
ordering cost=225×4=900
holding cost=2500/2 x1.75=2187.5
total cost=900+182500+2187.5=185587.5
For 5000 units
Unit cost=10000×17.85=178500
no. of orders=10000/5000=2
ordering cost=2×225=450
holding cost=5000/2 x 1.75=4375
total cost=178500+450+4375=183325
For 10000 units
Unit cost=100000×17=170000
no. of orders =10000/10000=1
ordering cost=225
holding cost=10000/2×1.75=8750
total cost=170000+225+8750=178975
Total cost minimised by ordering 10000 units.
thanks buddy
