ExpertEasy2 marksShort Answer
ACCA · Question 04 · Working Capital Management
'AgriGrow', an organic fertilizer producer, uses 10,000 tonnes of raw compost annually. The cost of placing an order is $50. The holding cost per tonne per year is $4.
Calculate the Economic Order Quantity (EOQ) for the raw compost.
(Enter your answer as a whole number without any units or commas)
'AgriGrow', an organic fertilizer producer, uses 10,000 tonnes of raw compost annually. The cost of placing an order is $50. The holding cost per tonne per year is $4.
Calculate the Economic Order Quantity (EOQ) for the raw compost.
(Enter your answer as a whole number without any units or commas)
How to approach this question
Apply the EOQ formula: Square root of ((2 * Co * D) / Ch).
Full Answer
The EOQ formula is √(2 × Co × D / Ch).
Co (Order cost) = $50
D (Annual demand) = 10,000
Ch (Holding cost) = $4
EOQ = √(2 × 50 × 10,000 / 4) = √(1,000,000 / 4) = √250,000 = 500 tonnes.
Common mistakes
Forgetting to take the square root at the end of the calculation.
Practice the full ACCA FM — Financial Management Practice Exam 3
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