Page 71 - Microsoft Word - 00 ACCA F2 Prelims.docx

Accounting for materials

Costs of carrying inventory

 Purchase price

 Holding costs

– Opportunity cost
– Insurance

– Deterioration

– Obsolescence
– Stores labour costs

Total annual holding cost = Ch × Q/2

 Ordering costs

–

–

Total annual ordering cost = Co × D/Q

Total annual cost = PD + (Co × D/Q) + (Ch × Q/2)

 Stock-out costs

–

–

–

–

Illustrations and further practice

Now try TYU question 4 from Chapter 5

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