SYBCom SEM III

Topic: Material Costing Question Set 2

By Rajkumar Gupta

Question 9: (Table Method - Quantity Discounts)

The Purchase Department of an organisation has received an offer of
quantity discounts on its order of materials as under Price per tonne(₹)
Tonnes
1400 Less than 500
1,380 500 and loss
than 1,000
1,360 1,000 and less than
2,000
1,340 2,000 and less than
3,000
1,320 3,000 and above
The annual requirement of the material is 5,000 tonnes. The delivery cost
per order is 1 200 and the annual stock holding cost is estimated at 20 per
cent of the average inventory.
The Purchase Department wants you to consider the following purchase
options and advise which among them will be the most economical
ordering quantity, presenting the relevant information in a tabular form.
The purchase quantity options to be considered are 400 tonnes, 500 ton,
1,000 tonnes, 2.000 tonnes and 3,000 tonnes.

Question 4: Assignment
From the following information calculate Economic Order Quantity by
using Formula and Tabula Method
Annual Requirement (Units) 6,400
Ordering Cost (Per order) ₹ 100
Carrying Cost per unit() ₹ 8
Per Unit Price 80
The firm can procure inventories in various lots such as (i)6.400 units (ii)
3.200 units (iii) 1,600 (iv) 800 units (v) 400 units (vi) 200 units and (vii)
100 units.

Question 5: Assignment
The following details are available
1. Inventory requirement per year 6,000 units.
2. Price per unit ₹ 5
3. Carrying costs per item for one year: ₹ 1
4. Cost of placing each order 60
5. Alternative order sizes (units) 2,000; 1,200; 1,000; 600 and 200
Determine the economic order quantity

Question 10 : (ABC Analysis)

A factory uses 4,000 varieties of inventory. In terms of inventory
holding and inventory usage, the following information is compiled:

No. of % % value of inventory % of inventory

varieties of holding (average) usage ((in end-
inventory product))
3,875 96.875 20 5
110 2.750 30 10
 15 0.375 50 85
4,000 100.000 100 100

Classify the items of inventory as per ABC analysis with reasons.

Problems on Stock Levels

Q1. ( Reoder / Minimum/ Maximum/ Average/ Danger)

The following information is in respect of Material
Re-order quantity = 1500 units
Re-order period = 4 – 6 weeks
Maximum Consumption = 400 units per week
Normal consumption = 300 units per week
Minimum consumption = 250 units per week
Emergency Re- order period = 2 weeks
Calculate: (a). Re-order level (b) Minimum Level (c) Maximum Level (d)
Average stock level (e) Danger Level
Question 2: (Assignment )
Two Components A and B are used as follows:
Normal Usage 50 units per week each
Minimum usage 25 units per week each
Maximum usage 75 units per week each
Re-order Quantity A: 300 units
B : 500 Units
Re-order period A : 4 to 6 weeks
 B : 2 to 4 weeks
Calculate for each component:
(a) Re-order level
(b) Minimum level
(c) Maximum level
(d) Average stock level

Question 3: Assignment
For the manufacture of a certain product two components A and B are
used. The following particulars about these components are available:
Normal Usage 60 units per week each
Minimum usage 30 units per week each
Maximum usage 80 units per week each
Re-order Quantity A: 400 units
B : 600 Units
Re-order period A : 4 to 6 weeks
B : 2 to 4 weeks
Calculate for each component:
(a) Re-order level
(b) Minimum level
(c) Maximum level
(d) Average stock level