ExpertEasy2 marksMultiple Choice
ACCA · Question 18 · Working Capital Management
Section B - Case 1: AquaHarvest
Scenario: AquaHarvest operates offshore kelp farms. The company requires 50,000 specialized biodegradable ropes per year for its farming operations. The cost of placing an order is $200. The holding cost per rope per year is $4.00.
Question: What is the Economic Order Quantity (EOQ) for the biodegradable ropes?
Section B - Case 1: AquaHarvest
Scenario: AquaHarvest operates offshore kelp farms. The company requires 50,000 specialized biodegradable ropes per year for its farming operations. The cost of placing an order is $200. The holding cost per rope per year is $4.00.
Question: What is the Economic Order Quantity (EOQ) for the biodegradable ropes?
Answer options:
A.
1,581 ropes
B.
2,236 ropes
C.
5,000 ropes
D.
10,000 ropes
How to approach this question
Apply the EOQ formula: Square root of [(2 * Cost per order * Annual Demand) / Holding cost per unit per year].
Full Answer
B.2,236 ropes✓ Correct
The Economic Order Quantity (EOQ) minimizes the total cost of ordering and holding inventory.
Formula: EOQ = √[(2 * Co * D) / Ch]
Where Co = $200, D = 50,000, Ch = $4.
EOQ = √[(2 * 200 * 50,000) / 4]
EOQ = √[20,000,000 / 4]
EOQ = √5,000,000 = 2,236.07 (rounded to 2,236 ropes).
Common mistakes
Forgetting to take the square root at the end of the calculation.
Practice the full ACCA FM — Financial Management Practice Exam 6
32 questions · hints · full answers · grading
More questions from this exam
Q01Section A
GlobalVax is a non-governmental organization (NGO) dedicated to distributing vaccines ...EasyQ02Section A
QuantumCore, a domestic quantum computing startup, relies heavily on imported rare-ear...MediumQ03Section A
VertiFarm Co operates a network of urban vertical farms. It is experiencing cash flow ...MediumQ04Section A
DeepSea Minerals PLC is evaluating two mutually exclusive underwater extraction machin...MediumQ05Section A
A municipal water desalination plant is seeking to raise capital in compliance with Is...Easy