Management Accounting F2
6 Moura uses the economic order quantity formula (EOQ) to establish its optimal reorder quantity for its single raw material. The following data relates to the stock costs Purchase price: Carriage costs: Ordering costs:
£15 per item £50 per order £5 per order
Storage costs: 10% of purchase price plus £0·20 per unit per annum Annual demand is 4,000 units. What is the EOQ to the nearest whole unit? Units__________ 7 A company determines its order quantity for a raw material by using the Economic Order Quantity (EOQ) model. What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a batch of raw material?
A B C D
EOQ
Total annual holding cost
Higher Higher Lower Lower
Lower Higher Higher Lower
8 A company determines its order quantity for a component using the Economic Order Quantity (EOQ) model. What would be the effects on the EOQ and the total annual ordering cost of an increase in the annual cost of holding one unit of the component in stock? EOQ ________
Total annual ordering cost _________
9 A company uses 1,000 units of a component per month. The cost of placing an order is £160. EOQ is 980 units. Calculate holding cost/unit. 10 The purchase price of a stock item is £25 per unit. In each three month period the usage of the item is 20,000 units. The annual holding costs associated with one unit equate to 6% of its purchase price. The EOQ 730 What is the cost/order? $_______
Prepared by: Muzzammil Malik
2