1.

A typical costing system is linked to the variance in material utilisation or variable in material
quantities. When the actual number of materials used differs from the number of materials
that should have utilised to produce the desired outcome, a variance develops. In other
terms, the actual number of materials used to produce the high-quality result was different
from the recommended number of materials. When the actual number of materials used
was greater than the expected number of materials, the materials utilisation variance was
unfavourable. When the actual number of materials used was less than the expected
amount, the materials consumption variance is favourable.
Let's say a company's normal costing system states that 5 Kgs of direct materials are
required to make one unit of output. The method also says that the material's typical cost
per Kg is $3. The corporation should have utilised 500 Kgs of materials if it generated 100
units of high-quality product (100 units of good output X 5 Kgs of materials per unit of
output). If the business used 530 Kgs of materials instead, the material usage variance would
have been $90 negative (30 more Kgs of materials multiplied by the industry average of $3
per Kg). It is possible to explain the $90 adverse materials usage variance by the following: In
comparison to the norm of $1,500 (100 units of production X 5 standard Kgs = 500 standard
Kgs x $3 standard cost), $1,590 (530 real Kgs used X $3 standard cost) was used.
Material usage variance = -2 x 10 = -20
Therefore, I don’t agree with Material usage variance = 2 kgs. @ ₹ 11 = ₹ 22 because we are
supposed to use Standard cost instead of actual cost.

a discrepancy between the real cost of direct material and direct and the standard direct
expenses materials that appears in a standard costing method. It is preferable to identify this
discrepancy at the time the direct materials are added to the straight or raw materials
inventory rather than when the materials are used in production (work-in-process). The
discrepancy between actual and budgeted material acquisition costs, multiplied by the
overall number of units purchased, is known as the materials price variance. The variance
helps identify situations when a company might be overpaying for components and raw
materials.
Material price variance = (Actual price - Standard price) x Actual quantity used
= (11 – 10 ) x 98
= 98
Therefore, I don’t agree with Material price variance = 100 kgs. × ₹ 1 = ₹ 100 because the
formula used is incorrect.
2. A cost sheet is a declaration that lists the many costs that make up a product's total cost and
provides historical data for comparison. Based on the cost sheet, you can determine a
product's ideal selling price. Either historical expenses or predicted costs can be used to
generate a cost sheet document. Based on the actual costs incurred for a product, a
historical cost sheet is created. On the other hand, an estimated cost sheet is created based
on estimated costs right before manufacturing starts.
Cost sheets assist with several crucial business procedures:

i) Calculating costs: The cost sheet's primary goal is to ascertain an exact product cost. It
provides you with a product's total cost as well as cost per unit.

ii) Fixing the selling price: You must develop a cost sheet in order to see the specifics of the
product's production costs in order to fix the selling price of a product.

iii) Cost comparison: It assists management in comparing a product's current cost to its
historical per-unit cost. If costs have escalated, comparing the costs enables management to
take corrective action.

iv) Cost management: The cost sheet is a crucial record for a manufacturing facility since it
aids in the management of production costs. Monitoring labour, material, and overhead
costs at each stage of production is made easier with the use of an estimated cost sheet.

v) Decision-making: The cost sheet serves as the foundation for some of management's most
significant choices. Managers use the cost sheet whenever a company wants to
manufacture, purchase, or quote prices for its items in a tender.

Cost accounting types of costs:

i) Fixed costs: These are expenses that are constant regardless of how many things are
produced. For instance, the cost of a piece of machinery or the worth of a building as it
depreciates.

ii) Variable costs: These expenses depend on how much a business produces. For instance, a
bakery might spend $10 on labour and $5 on supplies to make one cake. Depending on how
many cakes the company produces, the variable cost varies.

iii) Operating costs: These are the costs incurred by such an organisation to regularly
maintain the good. Operating expenditures include things like travel charges, phone rates,
and office supplies.

iv) Direct costs: These expenses are directly related to manufacturing. The cost of the raw
materials and labour for five days, for instance, are included in the direct cost of a finished
product if it takes a furniture production plant five days to make a couch.

Prime cost, manufacturing cost, office cost, and cost of sales make up the majority of the
overall cost components. Let's examine each of these components in greater detail:
i) Prime cost: This includes direct supplies, direct salaries, and direct outlays. It goes under
the names basic cost, beginning cost, and flat cost as well. It can be characterised as the sum
of the cost of the consumed materials, the production-related labour, and the direct
expenses. Prime cost is equal to the sum of the direct costs for labour and materials.
The phrase "direct material cost" typically refers to the price of raw materials utilised or
consumed over a specific time frame. The initial stock, the amount of material acquired, and
the closing stock are added together to determine how much raw material was actually
consumed within a particular period. Consumed material is equal to the sum of the opening
stock of the material and the closing stock of the material.

ii) Factory cost: This consists of manufacturing overhead, which comprises indirect costs for
indirect wages, indirect materials, and indirect expenses, plus prime cost. Work cost,
production cost, and manufacturing cost are further terms for "factory cost."
Prime cost plus factory overhead equals factory cost.

iii) Office cost: This is also referred to as the entire cost of production or the administrative
cost. Office costs are equivalent to production costs plus administrative and office expenses.

iv) Total cost or cost of sales: This is the total of the production costs plus all marketing and
distribution expenses.
Total cost = Cost of goods sold + Selling and distribution overhead

Details Calculations Amount

Raw Material consumed 280,000.00
280,000.00

Skilled worker 360,000.00

Unskilled worker 240,000.00 600,000.00

Prime cost 880,000.00
Royalty 120,000.00
Works overheads 200,000.00
Works cost 1,200,000.00
Office Overheads at 1/3 x 1,200,000 400,000.00
Total cost of production 1,600,000.00
cost of goods sold 1,600,000.00
Sales Commission 40000* x 4 160,000.00
cost of sales 1,760,000.00

closing stock value per unit 40.00

Sale price per unit 60.00

Profit 20 x 40000* 800,000.00
Sales 2,560,000.00
3.

a. Inventory management aids businesses in determining which merchandise to order when and in
what quantities. Inventory is tracked from product acquisition to sale. To guarantee there is always
adequate inventory to fulfil client orders and proper warning of a shortfall, the technique recognises
trends and reacts to them. Inventory turns into revenue after it is sold. Inventory ties up cash before
it is sold, while being listed as an asset on the balance sheet. As a result, having too much stock is
expensive and lowers cash flow. Inventory turnover is one metric for effective inventory
management. Inventory turnover is a metric used in accounting to determine how frequently stock
is sold over time. A company doesn't want to have more inventory than sales. Deadstock, or unsold
stock, can result from a lack of inventory turnover.

Advantages of Inventory Management

i) Saves Money: Understanding stock trends will help you better utilise the stock you
already have by allowing you to know how much and where you have it in stock.
Because you can fill orders from anywhere, you may keep less inventory at each location
(store, warehouse). This lowers the cost of holding inventory and reduces the amount of
inventory that is unsold before it becomes obsolete.
ii) Improves Cash Flow: When you manage your inventory well, you spend money on
products that will sell, which keeps the business's cash flow healthy.
iii) Satisfies Customers: Making sure clients get what they want right away is one way to
cultivate loyal patrons.

Inventory Management Challenges

i) Getting Accurate Stock Details: You can't determine when to restock or which stock is
moving well if you don't have accurate stock information.
ii) Poor Processes: Operations might be slowed down and work can become error-prone
using outdated or manual techniques.
iii) Changing Customer Demand: Tastes and wants of customers are always evolving. How
will you be able to determine when and why their preferences change if your system is
unable to observe trends?
iv) Using Warehouse Space Well: If similar products are hard to find, staff members
squander time. Getting inventory management right can help solve this problem.

A company's inventory is made up of the components, finished commodities, and raw

materials it sells or utilises in manufacturing. Inventory is viewed as an asset in
accounting. Accounting professionals use stock level information to accurately report
valuations on the balance sheet.

The optimal number of units to buy to satisfy demand while reducing inventory
expenses including holding costs, shortage costs, and order costs is known as the
economic order quantity (EOQ). Ford W. Harris created this production-scheduling
concept in 1913, and it has since been improved. Demand, ordering, and holding costs
are all taken into account in the economic order quantity calculation as constants. The
EOQ formula's objective is to determine the ideal quantity of product units to order. If
accomplished, a business can reduce the cost of purchasing, distributing, and storing
units. Businesses with extensive supply chains and significant variable costs utilise an
algorithms in their computer software to generate EOQ. The EOQ formula can be
changed to determine various production levels or order intervals. An essential cash
flow tool is the EOQ. The equation can assist a business in managing the amount of cash
held in the inventory balance. Besides its human resources, inventory is often a
company's biggest asset, thus these organisations need to keep enough of it on hand to
meet client demand. If EOQ can reduce the amount of inventory, the money saved can
be invested or used for other business needs. The inventory reorder point of a business
is determined using the EOQ formula. If the EOQ formula is used in business processes,
ordering more units becomes necessary when inventory reaches a specific level. The
company can continue to meet client orders and prevent inventory from running low by
figuring out when to reorder. A shortage cost, or revenue lost because the company
lacks enough inventory to satisfy an order, occurs if the company runs out of inventory.
A lack of inventory could also result in a customer being lost or a client placing fewer
orders going forward. EOQ considers the cost of placing an order, the cost of storing
goods, and the time of reordering. The cost of ordering is higher and more storage space
is required if a corporation consistently places minor purchases to keep a certain level of
inventory.
Consider a retail apparel store that carries a line of men's jeans and sells 1,000 pairs of
them every year. A pair of jeans in inventory costs the business $5 annually, and placing
an order has a fixed cost of $2.
The EOQ formula is equal to 28.3, rounded down, which is the square root of (2 x 1,000
pairs x $2 order cost) / ($5 holding cost). A little bit more than 28 pairs of jeans are the
optimal order quantity to match client demand while reducing costs. The reorder point
is provided by a more intricate part of the EOQ calculation.
The EOQ formula takes the idea of steady customer demand for granted. Additionally,
the computation counts on the ordering and holding costs staying constant. Because of
this, the formula has a difficult or impossible time taking into account business events
like shifting consumer demand, seasonal variations in inventory costs, lost sales due to
inventory shortages, or purchase discounts an organisation might experience when
purchasing inventory in larger quantities. An inventory management strategy called
economic order quantity aids in the formulation of effective inventory management
choices. It refers to the ideal quantity of inventory that a business should buy to meet
demand while lowering holding and storage costs. The assumption that the demand for
the company's products will remain constant over time is one of the key limits of the
economic order quantity. Economic order quantity will increase as setup costs for the
business or product demand rise. On the other hand, if the company's holding costs rise,
it will be lower. Economic order quantity is crucial since it aids businesses in effectively
managing their inventories. Without these inventory management strategies, businesses
will frequently store excess inventory during times of low demand while holding
insufficient inventory during times of strong demand. Missed opportunities result from
either issue.
 3. B. Instead of employing a reorder quantity calculation, many businesses place orders for
products depending on what they actually need at the time. Instead, businesses ought to
use the Economic Order Quantity method to streamline how they place orders and make
payments for goods (EOQ). The EOQ formula aids in determining the ideal order quantity to
save logistics and warehousing expenses for online retailers. You can decide more effectively
how much product to order in a specific time frame by calculating EOQ. Economic order
quantity is a formula used by businesses to determine the ideal order amount in an effort to
reduce the expenses associated with logistics, warehouse space, stockouts, and overstocks.
The EOQ model's objective is to establish the ideal order quantity you ought to have. EOQ
calculations for your company provide a number of advantages that affect your bottom line.
It's a terrific technique to understand how much merchandise must be bought to keep the
expenses down and maintain an effective e-commerce supply chain. Storage costs might rise
quickly if you have excess goods. Depending on the how you order, what gets destroyed,
and what products never sell, inventory expenses may also increase. EOQ can assist you
decide how much to order over a specific length of time if you frequently reorder low
velocity products. EOQ can assist you in determining how much and how frequently you
need to place new orders. You may prevent stockouts without keeping an excessive amount
of inventory on hand for an extended period of time by figuring out what you'll need based
as to how much you sell in a specific amount of time. Calculating EOQ can help you assess
whether ordering in lower quantities is more cost-effective for your company or whether it
is the contrary. Overall, knowing your EOQ can help you store and manage your inventory
more effectively. The truth is that many e-commerce businesses actually order more stuff
than is actually required because they have a "gut sense" about how much to order. A clever
technique to more accurately define how much you require depending on significant cost
variables is to use the EOQ formula.

EOQ =
S=9 D = 1,92,000 H = 15

=
= 480

480 is the most economical number of units to order

You can configure automatic reorder points that will automatically place a order once your inventory
levels reach a given threshold rather than manually checking inventory levels to restock products.
This is simple to do if you invest in inventory management software or work with a 3PL. There are
instances where a sudden rise in demand or problems with a supplier can leave you without enough
inventory. Simply put, safety stock is additional inventory above and beyond anticipated demand.
Safety stock is frequently utilised during peak shopping times, such as the holidays, as well as during
significant promotions or flash sales. Real-time inventory tracking makes it simple to keep an eye on
your stock levels, regulate them, and determine where certain items are kept in your warehouse. By
doing this, you may swiftly order inventory, decide how much product can be dispatched right away,
and notify customers of any delays caused by out-of-stock items.

Therefore, Orders should be placed as stock is depleted past a certain point and as stock is not
steady all times of the year there is no exact number of times order is to be placed.
Order is to be placed when stock is depleted past a certain point and in high demand festive seasons
extra stock should be maintained.