ExpertEasy2 marksMultiple Choice
ACCA · Question 04 · Working Capital Management
Section A
AgriNutrient Co requires 50,000 tonnes of raw phosphate annually for its fertilizer production. The cost of placing a bulk order is $200 per order. The annual holding cost is $5 per tonne.
Using the Economic Order Quantity (EOQ) model, what is the optimal order size for raw phosphate?
Section A
AgriNutrient Co requires 50,000 tonnes of raw phosphate annually for its fertilizer production. The cost of placing a bulk order is $200 per order. The annual holding cost is $5 per tonne.
Using the Economic Order Quantity (EOQ) model, what is the optimal order size for raw phosphate?
Answer options:
A.
1,000 tonnes
B.
1,414 tonnes
C.
2,000 tonnes
D.
4,000 tonnes
How to approach this question
Apply the EOQ formula: Square root of [(2 * Co * D) / Ch], where Co is the cost per order, D is annual demand, and Ch is the annual holding cost per unit.
Full Answer
C.2,000 tonnes✓ Correct
The EOQ formula is √((2 × Co × D) / Ch).
Co (Order cost) = $200
D (Annual demand) = 50,000 tonnes
Ch (Holding cost) = $5
EOQ = √((2 × 200 × 50,000) / 5) = √(20,000,000 / 5) = √4,000,000 = 2,000 tonnes.
Common mistakes
Forgetting to take the square root at the end of the calculation.
Practice the full ACCA FM — Financial Management Practice Exam 5
32 questions · hints · full answers · grading
More questions from this exam
Q01**Section A**
The Global Clean Water Initiative is a non-governmental organization (NGO) focused...EasyQ02**Section A**
NeuroTech Prosthetics, a high-growth medical technology startup, is seeking additi...MediumQ03**Section A**
AeroCater Services provides specialized inflight meals to commercial airlines. The...MediumQ05**Section A**
SolarGrid Municipal is evaluating a new solar farm project. At a discount rate of ...MediumQ06**Section A**
OreCrush Mining is deciding on the replacement cycle for its heavy excavators. A n...Easy