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
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