Inventory Management and EOQ MADE EASY | ACCA paper FM / F9 | Question Dusty

Learn how to quickly solve an EOQ (economic order quantity) and Inventory Management question. I'll take you through Question Dusty Part A, Sept/Dec 2019 Exam. Lots of exam technique and spreadsheet tips included--enjoy! Get help, tips, and exam technique to help you pass the ACCA FM CBE exam.
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Steve Willis ACCA
stevewillistraining.com
How to Pass ACCA CBE Exams
EOQ and inventory management help
For more help on ACCA FM EOQ, Inventory, and Working Capital, check out Open Tuition: • Inventory Management -...

[@fayfaygirlly]

Thank you Steve. Your videos helped me with PM, FM and now FR. ❤️

[@SteveWillisACCA]

Excellent! Glad they helped. And good luck next week!

[@pallavisuradkar8564]

For Eoq we can use =SQRT(2*252*1500000/0.21)

[@SteveWillisACCA]

That's also a fine way to do it, Pallavi :)

[@pallavisuradkar8564]

Thank you Steve !

[@saintsinner6689]

Hi, really finds this helpful as it has widen my knowledge in inv.mgt. Please I will be sitting for FR and FM for a start. Hope the combination is cool cos I find those two kind of onter related. Thanks

[@SteveWillisACCA]

Best of luck! I agree they are intertwined.

[@ambujkansal]

Very helpful and exam oriented.

[@SteveWillisACCA]

Keep watching

[@amritavijayan8984]

Thanks Love from Kerala☺️

[@SteveWillisACCA]

My pleasure 😊

[@dureshahwar708]

Unfortunately I saw all your videos just before few days😭😭😭😭..... I wish I saw them 3 month ago but still its helpful for me

[@SteveWillisACCA]

Glad they helped :)

[@mithunbabu1544]

Superb sir very helpful 🤗 good job

[@SteveWillisACCA]

Good luck this week!

[@yusufhusseinmohamed9903]

thanks sir for good fashionable presentation

[@SteveWillisACCA]

Most welcome :)

[@bvboys6097]

Hi, Sir thank you for debriefing this question. Really helpful Sir. For EOQ i was wondering why can't we multiply the savings of 3549 by .03 to get the savings related to finance cost and add the 3549 with that figure to get the total savings. I am not able to find the logic. Can you please help me on this Sir

[@PrashantPatil-gm6vx]

Thank you sir 😊

[@SteveWillisACCA]

My pleasure, Prashant, good luck on you upcoming exam!!!

[@PrashantPatil-gm6vx]

I am sitting exam for this June session sir .. Actually i spent lot of times doing section C in examination In previous attempts I couldn't clear the exam sir ..this time I am trying by best sir . Thank you for your concern sir it's really helpful me a lot ...

[@pallavisuradkar8564]

Thank you ! Pl. give some guidance for Qs like Pangli March/June 2017

[@SteveWillisACCA]

I'll add the one soon.

[@pallavisuradkar8564]

@@SteveWillisACCA Thank you for Uploading requested question with solution !

[@benwhite8371]

Hi Steve, thanks for this - a question on intuition for financing costs for inventory. We have an overdraft with which we purchase stock to hold in our inventory. Moving from our original average inventory of 62,500 down to our new average inventory of 30,000 doesn't reduce the number of units of components we need to buy - only how many components we hold on average, right? Since we're still purchasing the same amount of components (D = 1.5m units) - shouldn't our financing costs be the same? We're still using the overdraft to pay for the purchase price over our demand for components, not our average inventory. I understand financing with respect to falling AP days, since we need cash in order to reduce our AP days, and therefore (if we're in overdraft / have no cash) we require the use of overdraft to finance the reduction, but I'm failing to grasp the intuition with respect to reduction / increases in inventory.

[@SteveWillisACCA]

Hi, inventory and cash are assets. All things being equal, if Inventory goes down, cash goes up. If you hypothetically go the the supermarket and buy all the food you'll eat in a year (stick it in a giant freezer (not counting the electricity costs :) ) You'll need a lot of cash on hand. If you didn't have cash, you'd owe the supermarket a lot of money. Back to the inventory, If I had magical just-in-time and sold the goods the same day I received them, I would only need enough cash in advance to buy one-day's worth of goods. Think of a supermarket--they pay their suppliers maybe 60 days (if they are big corporate supermarkets) but only hold the inventory 2 weeks--so they have the opposite problem, treasury management of the spare cash. So assuming constant consumption of inventory, the more you buy in advance, the less cash you have sitting around.

[@DirterXaap]

Thnku ❤

[@SteveWillisACCA]

welcome :)

[@DirterXaap]

@@SteveWillisACCA The smiley at the end changed ACCA to cool! 😎😅

[@drewski5150]

Hey Steve, how did you copy and paste the data while keeping the cell references?

[@SteveWillisACCA]

Use "$" in front of the row or column. $A1 will keep column A locked in when you copy paste. Give it a try, it works the same in Excel.

[@PrashantPatil-gm6vx]

NPV calculation sir how to do in excel and how to use dollar sign in formats sir ..

[@SteveWillisACCA]

Hi Prashant, don't worry about formatting your cell with a currency sign. This would be a poor use of your time in the exam. Just tell the marker what you are doing in an adjacent cell as a label.

[@vaishnavisurnam5719]

Hi Steve, Thank you for the explanation. I have a question. why do we multiply our reduction in average inventory by the purchase price? Is it because the purchase price is based on the purchase of inventory from suppliers and therefore finance cost is calculated based on that? Please enlighten me :)

[@SteveWillisACCA]

Good question! Yes, inventory valuation is based on its cost.

[@MishalAbdulJaleel]

Hii steve why dont you take the finance cost associated with the holding cost (opportunity cost)??

[@SteveWillisACCA]

Hi there, you are correct. If there is no cash, then the inventory is funded from the short-term finance. Could be payables or overdraft. For the exam if they state that finance costs are part of holding costs, then include it 100%. If they don't mention that, the model answer usually excludes that--either way it is only going be 1/2 of a mark or so, so do what seems correct based on the past papers you've tried and keep moving! Good luck tomorrow.

[@SAIFULISLAM-dn1is]

Why purchasing cost is not considered In this question?

[@SteveWillisACCA]

That's an excellent question. Yes, purchasing costs are a cost of inventory. But if we are making a decision and there is no discount offered by the supplier, the purchase cost is not incremental--think of it as a fixed cost for this decision.

[@SteveWillisACCA]

If they add another complication to problem, 'the supplier will give a 10% discount if the company changes the order quantity...' then we would include it

[@darshghia]

​@@SteveWillisACCA But wasn't there a bulk order discount of 0.5%? If the company would instead order 250000 units? So why didn't we use the purchase costs? Also, other questions dont use this decrease in avg inventory, so what is the reason for using it here?

[@ThuyNguyen-wh7so]

the sound is not good I am quite disappointed

[@SteveWillisACCA]

Sorry to hear that; what exactly is wrong with the sound?

[@suraqaar2871]

hi is the saving on the finance cost due to the average inventory always added ? because i did a question related to eoq and in the answer it was not added

[@SteveWillisACCA]

Hi, when they give you the info about short-term finance costs, best to use it in your answer. In section C, if you left it out, it would only be 1 or maybe 2 marks.

[@suraqaar2871]

@@SteveWillisACCA Ok thanks