Calculation of EOQ and average stocks A company uses Material Z (cost £3.50 per kg) in the manufacture of Products A and B. The following forecast information is provided for the year ahead:

Required:

(a) State two items that would be regarded as ‘stock holding costs’ and explain how they may be controlled effectively. (5 marks)

(b) Calculate for the year ahead:
(i) the required production of Products A and B (in units), (3 marks)
(ii) the total requirement for Material Z (in kgs), (3 marks)
(iii) the Economic Order Quantity for Material Z (in kgs). (5 marks)

(c) Calculate the average stock investment (£)
and the annual stock holding costs (£) for Material Z.

Transcribed Image Text:

Sales (units) Finished goods stock increase by year end (units) Post-production rejection rate (%) Material Z usage (kg per completed unit, net of wastage) Material Z wastage (%) Product A Product B 24 600 9720 447 178 1 2 1.8 3.0 5 11