A manufacturing company uses 40,000 kilograms of a raw material evenly over a period. Thematerial is purchased at RM2.50 per kilogram. The cost of placing an order is RM120 and thecost of holding 1 kilogram of inventory for the period is 15% of the purchase costs.Required:a. Calculate the economic order quantity (EOQ).b. Calculate the total holding of the raw material in the period if the order quantity is 6,000kilograms and the buffer inventory is 2,000 kilograms.

solution given annual usage =40,000 kilogram ordering cost per order =RM 120…

logr aterial is purchased at RM2.50 per kilogram. The cost of placing an order is ost of holding 1 kilogram of inventory for the period is 15% of the purchase equired: Calculate the economic order quantity (EOQ). Calculate the total holding of the raw material in the period if the order

logr aterial is purchased at RM2.50 per kilogram. The cost of placing an order is ost of holding 1 kilogram of inventory for the period is 15% of the purchase equired: Calculate the economic order quantity (EOQ). Calculate the total holding of the raw material in the period if the order

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A manufacturing company uses 40,000 kilograms of a raw material evenly over a period. The
material is purchased at RM2.50 per kilogram. The cost of placing an order is RM120 and the
cost of holding 1 kilogram of inventory for the period is 15% of the purchase costs.
Required:
a. Calculate the economic order quantity (EOQ).
b. Calculate the total holding of the raw material in the period if the order quantity is 6,000
kilograms and the buffer inventory is 2,000 kilograms.

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