Costing and Reports - ? Free stock

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
We have a homework question:

Free stock represents.........

and

how is free stock calculated

been through my text books back to front and cannot find a thing, any help would be greatly received. The last question shows
Materials in stock, Materials on order and Materials requisitioned (not yet issued) and you need to + or - these in to get the result !

Many thanks

Rosie

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Costing and Reports - ? Free stock

    stock should be valued at the lowest of the cost or resale value since its free its not nesscessary to record it in the assets accounts you may just need to record it to keep an idea of how much actual stock you have an when you need to re-order
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Costing and Reports - ? Free stock

    Thanks, but this question relates to Cost Determination, units 6 & 7, it is to do with reorder levels, max and min levels and the EOQ calculation !
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Costing and Reports - ? Free stock

    It appears that what the EOQ tells you and what free stock is are different things. The EOQ tells you what the amount you should order should be:

    Economic Order Quantity (EOQ)

    EOQ = SQUARE ROOT OF (2DO)/H

    where
    D = Demand for the Year
    O = Cost per Order
    H = Holding Cost

    I havent got the text book but you would imagine free stock is:

    Stock held - Amount on sales orders.

    But if its asking what should the amount to buy is you have to take account of whats on purchase orders and minimum stock levels.

    i.e. (Sales Orders + Minimum Stock) - (Stock Held + Already on Purchase Orders)

    But this is academic really because what the question wants to hear is something else.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Costing and Reports - ? Free stock

    Thanks for the reply, yes, we are ok with the economic order quantity, i was trying to get accross which part of costings we are doing !

    We battled all weekend and i think we came to the same conculsion !

    Regards
    Rosie
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Costing and Reports - ? Free stock

    In the ECR syllabus stock control will not test EOQ either by skills test or exam. This topic is not in the ECR syllabus as it stands at the moment.

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