ExpertMedium2 marksShort Answer
ACCA · Question 13 · Cost Accounting Techniques
A retail multinational sells 10,000 units of a specific electronic gadget annually. The cost of placing an order is $50. The purchase price per unit is $20, and the annual holding cost is 10% of the purchase price.
Calculate the Economic Order Quantity (EOQ). Round to the nearest whole unit.
A retail multinational sells 10,000 units of a specific electronic gadget annually. The cost of placing an order is $50. The purchase price per unit is $20, and the annual holding cost is 10% of the purchase price.
Calculate the Economic Order Quantity (EOQ). Round to the nearest whole unit.
How to approach this question
Use the EOQ formula: sqrt((2 * D * Co) / Ch). D = 10,000, Co = $50, Ch = 10% of $20.
Full Answer
D (Annual Demand) = 10,000
Co (Cost per order) = $50
Ch (Holding cost per unit per year) = 10% × $20 = $2
EOQ = √((2 × 10,000 × 50) / 2)
EOQ = √(1,000,000 / 2) = √500,000 = 707.106...
Rounded to nearest whole unit = 707.
Common mistakes
Using $20 as the holding cost instead of calculating 10% of $20.
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