Problem:
Calculation of number of orders and holding costs
N Ltd's Chief Executive believes the company is holding excessive stocks and has asked the Management Accountant to carry out an investigation.
Information on the two stock items is given below:
|
Stock item
|
Purchase price $ per unit
|
Administration cost $ per order
|
Demand units
|
Holding cost per year % of purchase price
|
|
G
|
200
|
80
|
15 000 per year
|
13.33
|
|
H
|
25
|
28
|
2800 per year
|
8.00
|
The company's stock ordering policy is based on the Economic Order Quantity. (EOQ)
Required:
(a) Determine the number of orders per year that the company will place for item G
(b) Determine the annual holding cost of the stock of item H