Question 1

Section B - Case 1: AquaHarvest

Scenario: AquaHarvest operates offshore kelp farms. The company requires 50,000 specialized biodegradable ropes per year. The cost of placing an order is $200. The holding cost per rope per year is $4.00. The standard purchase price per rope is $15.00.

The supplier has offered a 2% bulk discount on the purchase price if AquaHarvest orders in batches of 10,000 ropes.

Question: What is the total annual cost (purchase + ordering + holding) if AquaHarvest accepts the bulk discount offer?

Accepted Answer

Calculate three components: 1) Annual purchase cost with the 2% discount. 2) Annual ordering cost (Demand / Order Size) * Cost per order. 3) Annual holding cost (Order Size / 2) * Holding cost per unit. Sum these three figures.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Calculating holding costs on the maximum inventory (10,000) rather than average inventory (5,000).

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FM — Financial Management Practice Exam 6

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