Page 118 - F2 - MA Integrated Workbook STUDENT 2018-19

Chapter 5

Test your understanding answers

Test your understanding 1

A
$
Purchase costs 10,000 units × $20 200,000
Holding costs $2 × 250/2 250
Order costs $20 × 10,000/250 800
–––––––
Total costs 201,050

Test your understanding 2

The re-order level = Maximum usage × maximum lead time

= 50 per day × 10 days = 500 units

Test your understanding 3

C

Annual production rate = 400 × 50 = 20,000

Using the economic batch quantity formula:
2,000 = √{(2 × setup cost × 4,000)/(1.5 × (1–4,000/20,000))}
2
2,000 = 2 × setup cost × 4,000/1.5 × 0.8
2
Setup cost = 2,000 × 1.5 × 0.8 /2 × 4,000
Setup cost = $600

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