Accounting and Financial Management (AFC102) – Formative Assessment 2 | Comprehensive Summary, Calculations, and Answers on Financial Statements and Management Accounting Concepts Module Code: AFC102

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Accounting and Financial Management (AFC102) –
Formative Assessment 2 | Comprehensive Summary,
Calculations, and Answers on Financial Statements and
Management Accounting Concepts
Module Code: AFC102
QUESTION 1

1.1 REQUIRED

Use the information given below to calculate the following:
• Monthly sales: 3,750 units

• Selling price per unit: R14

• Purchase price: Cost plus 40%
(Meaning the selling price is 140% of cost)

• Carrying cost: 10% of the unit purchase price

• Ordering cost: R100 per order



1.1.1 Economic Order Quantity (EOQ)

Annual Demand (D)
Monthly sales = 3,750 units
Annual demand (D) = 3,750 × 12 = 45,000 units

Unit Purchase Price (P)
Selling price = R14 (which is 140% of cost)
14
Cost = = 𝑅10
1.4


Purchase price (P) = R10

Carrying Cost per Unit (H)
Carrying cost = 10% of purchase price

0.10 × 10 = 𝑅1 per unit per year

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Ordering Cost (S)
Ordering cost (S) = R100 per order



EOQ Formula:

2𝐷𝑆
𝐸𝑂𝑄 = √
𝐻


Where:

• D = 45,000
• S = 100

• H=1

2 × 45,000 × 100
𝐸𝑂𝑄 = √ = √9,000,000 = 3,000 u nits
1


Answer: EOQ = 3,000 units



1.1.2 Number of orders to be placed annually
𝐷 45,000
Number of orders = = = 15 o rders
𝐸𝑂𝑄 3,000


Answer: 15 orders per year




1.1.3 Total ordering cost and total carrying cost
Total Ordering Cost:

Number of orders × Ordering cost per order = 15 × 100 = R1,500


Total Carrying Cost:

Average inventory: