- 20 Marks
MA – Nov 2015 – L2 – Q4 – Other aspects of performance measurement
Discuss the relevant costs for EOQ, motives for holding stock, and compute EOQ and associated costs for Quaku Manu Limited.
Question
What are the two most relevant costs for determining the Economic Order Quantity? Give THREE (3) specific examples in each case. (6 marks)
b) Examine the THREE (3) motives for holding stocks. (3 marks)
c) Explain Economic Order Quantity and discuss TWO (2) of its relevance. (3 marks)
d) Quaku Manu Limited purchases and sells CDs. The company has been experiencing stock shortages and excess stocks at certain times in the year. The manager is concerned about the impact of overstocking and understocking and is therefore requesting you to assist in determining the most economic quantity of CDs to order. He has made the following information available to you:
| Item | Value |
|---|---|
| Sales per annum | GHS 20,000,000 |
| Units of items sold | 200,000 units |
| Markup on cost of purchases | 25% of purchase price |
| Ordering cost per order | GHS 200 |
| Holding cost per unit | 5% of unit price |
Required:
i) Determine the economic order quantity. (2 marks)
ii) What is the annual ordering cost? (2 marks)
iii) Determine the annual holding cost. (2 marks)
iv) How many times in a year will the company order for goods? (1 mark)
v) What is the purchase value per order quantity? (1 mark)
(Total = 20 marks)
Find Related Questions by Tags, levels, etc.
- Tags: EOQ, Holding costs, Inventory Management, Ordering costs, Stock motives
- Level: Level 2
- Topic: Other Aspects of Performance Measurement
- Series: NOV 2015