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