Questions on Economic Order Quantity


A retail company has been viewing the adequacy of its stick control systems and has identified three products for investigation. Relevant details for the three products are set out below:

Item Code EOQ Stock (Warehouse and Stores) Weekly sales (Shs. ‘000’) Gross margin (See note 1)
  (000units) (000 units) (Shs/Unit at cost) Minimum Normal Maximum (% of sales)
14/363 25 32.5 2.25 26 28 30 42
11/175 500 422.7 0.36 130 143 160 46
14/243 250 190 0.87 60 96 128 37

Note 1

Gross margin = sales – purchase cost of product

Outstanding order: item code 14/243 – order for 250,000 units placed 2 trading days ago.

There are 6 trading days per week.

All orders are delivered by suppliers into the retailer’s central warehouse. The lead-time is one week from the placement of order. A further week is required by the retailer in order to transfer stock from central warehouse to stores. Both of these lead times can be relied upon.


  1. Calculate for each product
    1. The minimum and maximum weekly sales units
    2. The stock re-order level
    3. The maximum stock control level (12 marks)
  2. Comment upon the adequacy of the existing stock control of the three products. (8 marks)   (Total: 20 marks)


  1. What is ABC analysis? Briefly explain the Pareto principal as applied in inventory control. (6 marks)
  2. What are the advantages and disadvantages of a centralized stores system? (7 marks)
  3. What is meant by the term “imprest system of stores” (7 marks)

(Total: 20 marks)


TINDO Ltd. Buys and sells products Q-3. it values stock on the basis of last in first out (LIFO). At June 2001, stock in hand consisted of 4,500 units, which were acquired at sh.50 per unit. The operations for the month were as follows:

  Date Purchases Sales
June 1   5,000 @ sh.48 6,000 @ Sh.60
  5 5,500 @ Sh.49    
  7 4,000 @ Sh.50    
  11     7,000 @ sh.61
  12 5,000 @ Sh.50    
  13 6,000 @ Sh.47    
  18     7,000 @ Sh.62
  19     8,000 @ Sh.64
  20   6,000 @ sh.49.50  
  21     5,000 @ Sh.65
  22   4,000 @ Sh.50  
  25   6,000 @ Sh.49  
  26   2,000 @ Sh.47  
  28     500 @ Sh.60
  29     14,000 @ Sh.64

The company incurred operating costs of Sh.450,000 during the month.


  1. Stores ledger card (14 marks)
  2. Closing stock valuation (2 marks)
  3. Trading account for the month. (4 marks) (Total: 20 marks)


  1. What are the objectives of storekeeping? (4 marks)
  2. Distinguish between continuous and perpetual inventory system. (4 marks)

Briefly describe the purpose and content of each of the following documents/records.

  1. Bill of Materials
  2. Purchase Requisition
  3. Purchase Order
  4. Delivery Note or Goods Received Note
  5. Material Requisition Note
  6. Material Return Note
  7. Material Transfer Note
  8. Bin Card
  9. Stores Ledger Account
  10. Stores Ledger Control Account
  11. Inventory Tag
  12. Stock Verification Report (12 marks)

(Total: 20 marks)


  1. What is the Economic Order Quantity? (3 marks)
  2. What are the assumptions of the EOQ Model? (5 marks)

A company uses 50,000 rings per annum, which cost Sh.100 each. The ordering and handling costs are Sh.1,500 per order and carrying costs are 15% per annum of costs i.e. it costs Sh.15 per annum (15% x 100) to carry a ring in stock.


Determine the EOQ using the following methods.

  1. Tabular method (4 marks)
  2. Graphical method (4 marks)
  3. Algebraic formula method (4 marks)     (Total: 20 marks)


Clearly distinguish CVP analysis and BEP analysis. (10 marks)

What assumptions underlie the CVP analysis? What is their effective implication? (10 marks)

Other Custom Business Writing services offers other custom business writing services such as Management writing services: Management essays, Management Dissertations, Management company analysis, Management Research papers and term papers: Finance writing services: Finance essays, Finance Dissertations, Finance case study analysis, Finance Research papers and term papers: Economics Writing Services: Economics essays, Economics Dissertations, Economics thesis, Economics Research papers and Economics term papers: Marketing Writing Services: Marketing essays, Marketing Dissertations, Marketing company analysis, Marketing Research papers and term papers:Business Writing Services: Business Essay, Business Research paper, Business term paper, Business Dissertation, Business Thesis, Business Case study: Auditing Writing Services: Auditing essays, Auditing research papers, Auditing dissertations, Auditing thesis, Auditing Term papers, Auditing Case study: Business information systems: Business information systems thesis, Business information systems dissertation, Business information systems Research papers, Business information systems term papers: Taxation writing services: Taxation thesis, Taxation dissertation, Taxation research papers, Taxation essays, Taxation term papers,Taxation company analysis:Human resources writing services: Human recourses thesis,Human resources essays, Human resources case study, Human resources term papers, Human resources case study Business law writing services:Business law writing services thesis, Business law writing services dissertation, Business law writing services case study and many more. Join the rest of our Accounting Essays client network and enjoy our Accounting Essays Writing services at Business Writing