I am reviewing Dec 2012 exams regarding Working Capital (question 2).
I have some doubts regarding answer to point b, as provided in model answers by ACCA.
Of course I might be wrong, then I would appreciate explanation a lot.
Both annual holding cost & revised annual holding cost are calculated using monthly volume even though holding cost rate is annual in the same equation. Should we use yearly volume when we talk about annual cost?
Monthly volume is 15k units. Holding cost is 24 cents per unit per year. According to offer from supplier, we are asked to comment on, we need to order min. 30k units per order to receive a discount.
Calculations in model answer are as follows:
Annual holding cost = 0·24 x (15,000/2) = $1,800 per year
Revised holding cost = 0·24 x (30,000/2) = $3,600 per year
Thanks a lot for answers
I hope you have got your answer. If not I would reframe the question like that for example if you are employee you get monthly salary of 15- k assume that you consume all your salary in a month .so what would be your cash during a month , it would be between 0- 15-k what is average 0+15-k/2.it means you hold Avg 7.5k P.A the bank will charge you $1800 for holding your cash