ExpertMedium2 marksShort Answer
ACCA · Question 13 · Cost Accounting Techniques
Section A
SteelWorks Manufacturing requires 10,000 units of a specific alloy per year. The cost to place a single order is $50. The holding cost per unit per year is $4.
Using the Economic Order Quantity (EOQ) formula, calculate the optimal order quantity. Enter the exact number only.
Section A
SteelWorks Manufacturing requires 10,000 units of a specific alloy per year. The cost to place a single order is $50. The holding cost per unit per year is $4.
Using the Economic Order Quantity (EOQ) formula, calculate the optimal order quantity. Enter the exact number only.
How to approach this question
Use the EOQ formula: Square root of ((2 * Co * D) / Ch). Plug in D = 10,000, Co = 50, Ch = 4.
Full Answer
EOQ = √((2 * 50 * 10,000) / 4) = √(1,000,000 / 4) = √250,000 = 500 units.
Common mistakes
Forgetting to take the square root, or using monthly demand instead of annual demand (though annual is given here).
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