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Costing

Deeps (Article Assisstant) (2485 Points)

20 October 2009

In computation of EOQ, if both Monthly Demand and Normal Usage per week is given means, in the formula which should be taken as Annual Requirement.

1. Should we have to take Monthly Demand and Multiply with 12 or

2. Should we have to take Normal Usage per week and Multipy with 52.

Thanks in advance. Pl. reply

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23 Replies

ashish gupta ( student) (1922 Points)
Replied 20 October 2009

U should take monthly demand of the prod. dept. in consideration, as it is the qty which the factory requires for manufacturing.

Deeps (Article Assisstant) (2485 Points)
Replied 20 October 2009

But in institue material they worked out with weekly. In Saravana Prasath Material monthly is taken.

deepak shinde (article) (41 Points)
Replied 20 October 2009

in given sitiuation it is provide that the monthly demand of material and same time is given actual usage of material weekly ,

so it is depend on sitiuation.

in ur query please take a weekly .

ashish gupta ( student) (1922 Points)
Replied 20 October 2009

Ya this depends upon the situation, if demand of ur prod dept is clear than take it with demand otherwise on consumption basis

CA Sheetal Gude (CA , CWA) (59 Points)
Replied 20 October 2009

in the truest sense of costing, the EOQ should always be condidered in terms of weeks, especially for items that are regularly used by the company. So in your case, if you have to consider Normal Usage per week.

Deeps (Article Assisstant) (2485 Points)
Replied 20 October 2009

thanks for clearing my doubt. But can you pl. tell me from which book you took this reply.

"in the truest sense of costing, the EOQ should always be condidered in terms of weeks, especially for items that are regularly used by the company. So in your case, if you have to consider Normal Usage per week."

The Harshit Aggarwal (B.Com(H) ,CS Final) (5278 Points)
Replied 20 October 2009

Normal Usage per week !!

CA Sheetal Gude (CA , CWA) (59 Points)
Replied 20 October 2009

I am a Cost Accountant, so while reading the ICWA Journal i remembered seeing this logic

(Guest)

u should take normal usage per week

Rahul Bansal (Finalist) (35929 Points)
Replied 20 October 2009

Normal Usage per week

Deeps (Article Assisstant) (2485 Points)
Replied 20 October 2009

thanks every body :)

CA Inderdeep Singh (CHARTERED ACCOUNTANT) (103 Points)
Replied 20 October 2009

normal usage

because we have to consider anual consumption

if consm. not given that it is assumed that demand is equal to consumption

Pratik Singhi (service) (38 Points)
Replied 20 October 2009

Remember, one of the basic underlying assumptions of the EOQ tool is uniformity in consumption of the materials. Hence, in any situation like the one faced by you, the preferred choice should be the one which provides more uniformity of consumption - in this case weekly in comparison to monthly.

Deeps (Article Assisstant) (2485 Points)
Replied 20 October 2009

Originally posted by :Pratik Singhi
"	Remember, one of the basic underlying assumptions of the EOQ tool is uniformity in consumption of the materials. Hence, in any situation like the one faced by you, the preferred choice should be the one which provides more uniformity of consumption - in this case weekly in comparison to monthly.	"

Thank you very much:))