ACCA Financial Management (F9) Certification Practice Exam

Which of the following is a component in calculating ordering costs?

1. Cost of holding inventory per annum

2. Cost of placing an order and annual demand in units

3. Sales revenue and net working capital

4. Quantity of safety inventory and average daily usage

The correct answer is: Cost of placing an order and annual demand in units

In the context of managing inventory and calculating ordering costs, the correct choice involves the cost of placing an order and the annual demand in units. Ordering costs typically refer to all costs associated with placing and receiving inventory orders. The cost of placing an order can include expenses such as shipping fees, labor costs related to order processing, and any overhead associated with ordering supplies. Annual demand in units is crucial because it helps businesses determine how frequently they need to reorder inventory based on the total quantity they expect to sell in a year. These two factors are essential for businesses to understand their overall ordering costs, as they directly impact how much is spent on ordering supplies relative to the volume of goods being managed. On the other hand, holding inventory costs, which represent the storage and management costs of keeping inventory on hand, are not part of the ordering cost calculation but rather fall under a different category of costs. Sales revenue and net working capital are more related to financial metrics used in assessing performance and liquidity rather than being specific components of ordering costs. Finally, safety inventory and average daily usage relate to inventory management tactics to avoid stockouts but do not contribute directly to the calculation of ordering costs.