T o p i c - W i s e | P a s t e x a m P a p e r s
A business currently orders 1,000 units of product X at a time. It has decided that it may be better to usethe Economic Order Quantity method to establish an optimal reorder quantity.Information regarding stocks is given below:Purchase price £15/unitFixed cost per order £200Holding cost 8% of the purchase price per annumAnnual demand 12,000 unitsCurrent annual total stock costs are £183,000, being the total of the purchasing, ordering and holdingcosts of product X.
Required:(a) Calculate the Economic Order Quantity.
(b) Using your answer to (a) above calculate the revised annual total stock costs for product X and soestablish the difference compared to the current ordering policy.
(c) List ways in which discounts might affect this Economic Order Quantity calculation and subsequentstock costs.
[Sec: B, Q: 4 F2 December 2003]
The following data for the current year relate to a sterile pack purchased by the Goodheart Hospital:Annual demand 90,000 unitsAnnual holding cost per unit £8Cost of placing an order £25From the start of next year the cost of placing an order will rise by £11 but all the other data will remainthe same.The hospital bases its purchasing decisions on the Economic Order Quantity (EOQ) model.
Required:(a) Calculate the EOQ for:(i) The current year(ii) Next year.
(b) Calculate the total extra annual cost to the hospital for next year of ordering and holding stock of thesterile packs.
(c) Identify TWO major costs associated with each of the following:(i) Holding stock;(ii) Ordering stock.
(2 marks)[Sec: B, Q: 4 F2 December 2004]
Jane plc purchases its requirements for component RB at a price of £80 per unit. Its annual usage ofcomponent RB is 8,760 units. The annual holding cost of one unit of component RB is 5% of its purchaseprice and the cost of placing an order is £12·50.
Required:(a) Calculate the economic order quantity (to the nearest unit) for component RB.
(b) Assuming that usage of component RB is constant throughout the year (365 days) and that the leadtime from placing an order to its receipt is 21 days, calculate the stock level (in units) at which an ordershould be placed.
(i) Explain the terms ‘stockout’ and ‘buffer stock’.
(ii) Briefly describe the circumstances in which Jane plc should consider having a buffer stock ofcomponent RB.
(4 marks)[Sec: B, Q: 3 F2 June 2005]
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