Question 1

**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?

Accepted Answer

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.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Forgetting to take the square root at the end of the calculation.

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?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FM — Financial Management Practice Exam 5

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