'AgriGrow', an organic fertilizer producer, uses 10,000 tonnes of raw compost annually. The cost of placing an order is $50. The holding cost per tonne per year is $4.

Calculate the Economic Order Quantity (EOQ) for the raw compost.

(Enter your answer as a whole number without any units or commas)

How to approach this question

Apply the EOQ formula: Square root of ((2 * Co * D) / Ch).

Full Answer

The EOQ formula is √(2 × Co × D / Ch). Co (Order cost) = $50 D (Annual demand) = 10,000 Ch (Holding cost) = $4 EOQ = √(2 × 50 × 10,000 / 4) = √(1,000,000 / 4) = √250,000 = 500 tonnes.

Common mistakes

Forgetting to take the square root at the end of the calculation.

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'AgriGrow', an organic fertilizer producer, uses 10,000 tonnes of raw compost annually. The cost of placing an order is $50. The holding cost per tonne per year is $4. Calculate the Economic Order Quantity (EOQ) for the raw compost. (Enter your answer as a whole number without any units or commas)

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FM — Financial Management Practice Exam 3

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