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21 Material Costing 1727742313 Vipin Bohra

The document contains a series of questions related to inventory management and cost calculations for a manufacturing company. It includes tasks such as calculating re-order quantities, re-order levels, economic order quantities, and inventory turnover ratios based on provided data. Each question requires specific calculations and considerations regarding raw material consumption, carrying costs, and order frequency.

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Afzal AkRam Sheik
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48 views2 pages

21 Material Costing 1727742313 Vipin Bohra

The document contains a series of questions related to inventory management and cost calculations for a manufacturing company. It includes tasks such as calculating re-order quantities, re-order levels, economic order quantities, and inventory turnover ratios based on provided data. Each question requires specific calculations and considerations regarding raw material consumption, carrying costs, and order frequency.

Uploaded by

Afzal AkRam Sheik
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Questions

Q1
A company manufactures 5,000 units of a product per month. The cost of placing an order is `
100. The purchase price of the raw material is ` 10 per kg. The re-order period is 4 to 8 weeks.
The consumption of raw materials varies from 100 kg to 450 kg per week, the average consumption
being 275 kg. The carrying cost of inventory is 20% per annum.
You are required to calculate
(i) Re-order quantity (ii) Re-order level
(iii) Maximum level (iv) Minimum level
(v) Average stock level

Q2
A company manufactures a product from a raw material, which is purchased at `60 per kg. The
company incurs a handling cost of ` 360 plus freight of ` 390 per order. The incremental carrying cost
of inventory of raw material is ` 0.50 per kg. per month. In addition, the cost of working capital finance
on the investment in inventory of raw material is ` 9 per kg. per annum. The annual production of
the product is 1,00,000 units and 2.5 units are obtained from one kg of raw material.
Required
(i) Calculate the economic order quantity of raw materials.
(ii) Advise, how frequently should orders for procurement be placed.
(iii) If the company proposes to rationalize placement of orders on quarterly basis, what
percentage of discount in the price of raw materials should be negotiated?

Q3
The quarterly production of a company's product which has a steady market is 20,000 units. Each unit
of a product requires 0.5 kg. of raw material. The cost of placing one order for raw material is ` 100
and the inventory carrying cost is ` 2 per annum. The lead time for procurement of raw material is
36 days and a safety stock of 1,000 kg. of raw materials is maintained by the company. The company
has been able to negotiate the following discount structure with the raw material supplier.
Order quantity (kg.) Discount (`)
Upto 6,000 NIL
6,001 – 8,000 400
8,001 – 16,000 2,000
16,001 – 30,000 3,200
30,001 – 45,000 4,000
You are required to
(i) Calculate the re-order point taking 30 days in a month.
(ii) Prepare a statement showing the total cost of procurement and storage of raw material after
considering the discount of the company elects to place one, two, four or six ordersin the year.
(iii) State the number of orders which the company should place to minimize the costs after
taking EOQ also into consideration.
Q4
Following details are related to a manufacturing concern:
Re-order Level 160,000 units
Economic Order Quality 90,000
Minimum Stock Level 100000 units
Maximum Stock Level 190000 units
Average Lead Time 6 days
Difference between minimum lead time and Maximum lead time 4 days
Calculate:
(i) Maximum consumption per day
(ii) Minimum consumption per day

Q5

The following data are available in respect of material X for the year ended 31st March, 2014:
Opening stock ` 90,000
Purchases during the year ` 2,70,000
Closing stock ` 1,10,000
Calculate: (i) Inventory turnover ratio and (ii) the number of days for which the average inventory is held.

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