ACCA · Question 09 · Working Capital Management

Section A

CityWater is a public utility company that requires 50,000 units of a specific chemical annually for water treatment. The cost of placing an order is $100. The holding cost per unit per year is $4.

Using the Economic Order Quantity (EOQ) model, what is the total annual cost of ordering and holding inventory if the company orders exactly the EOQ? (Ignore the purchase cost of the chemical).