Cakulation 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