NMIMS Assignment

Subject: Cost & Management Accounting

Answer-1

The numbers offered are flawed, and I disagree. Here are the appropriate calculations for
pricing and material consumption discrepancies. Variances.

Material Usage Variance: This might occur when the quantity utilized for
manufacturing differs from the initial standard quantity planned for it. With the use of the
following formula, it may be measured.

Material Usage Variance = Standard price * (Standard quantity-Actual Quantity)

The following would be the appropriate response to the question above:
Standard number: 10 x 98 = 980
The actual number is 11*98, or 1078.
Variance in Material Usage = 10 * (980–1078) = 980

Material price variance: This represents the discrepancy between the already
established standard price and the actual price paid for the quantity used. If the actual
price is higher than the standard price, the result can be deemed unfavorable, and vice
versa. This can be verified using the formula below.

Material price Variance = Actual quantity used *(standard price-Actual price)

Based on the above question the answer would be
Material price Variance= 98* (10-11) = 98
In this case, the result is unfavorable as the actual price is more than the standard price.
Answer-2
Particulars Amount
Raw Material 2,80,000
Direct Wages  
Skilled 3,60,000
Unskilled 2,40,000
Prime Cost 8,80,000
Works Overhead 2,00,000
Cost of production 10,80,000
Less Closing stock 1,08,000
Cost of Goods sold 9,72,000
Office Overhead 66,667
Sales Commission 1,44,000
Cost of Sales 11,82,667
Profit 9,77,333
Sales 21,60,000

Answer-3

Part: 1
Economic order quantity (EOQ) is a computation that businesses use to determine the
number of ideal orders that would allow them to satisfy demand without going over
budget. For the purpose of reducing holding costs and surplus inventory, inventory
managers compute EOQ.
For companies who purchase and maintain inventory for manufacture, resale, internal
usage, or any other reason, it is a helpful statistic. Businesses that adhere to EOQ take
into account demand for the goods, purchase discounts, and holding costs in addition to
all expenses associated with purchasing and delivery.
The formula for EOQ is: EOQ = √ [2AO/C]
where: Q: EOQ units
A: Annual Demand in units (typically on an annual basis)
O: Order cost (per purchase order)
C: Carrying costs (per unit, per year)
The appropriate order size to boost revenues for every firm should be known before we
compute EOQ. It eliminates guesswork, and there is less worry about ordering too much
or running out of stock.
EOQ might have a substantial influence on your company if you operate a big firm, a
business that needs expensive inventory, or a business with high inventory holding costs,
increasing operational effectiveness, cash flow, and profitability for years to come.

Advantages Of EOQ
 Reduced expenses for inventory
Storage expenses can rise fast if there is an excess of goods. The way you place your
orders, what gets damaged, and which goods never sell can all result in higher inventory
expenditures. The EOQ might assist you in determining how much to order within a
specific time frame if you frequently reorder low-velocity items.
 Minimize stockouts
You can determine how many and how often you need to repurchase with the aid of
EOQ. By figuring out just how much merchandise you need depending on how much you
sell in a certain amount of time, you can prevent stockouts.
Calculating EOQ can help you find out whether ordering in lower quantities is more cost-
effective for your business or whether the converse is true.
 Discounts for Quantity
Planning and scheduling your orders properly enables you to benefit from the finest
quantity or bulk order discounts provided by your providers.
 Overall efficacy is increased
In general, calculating EOQ may help you make wiser choices about the management and
storage of your inventory. In reality, rather than purchasing the exact quantity of
merchandise needed, many e-commerce companies make orders based on a "gut sense"
of how much stuff is needed. Making an EOQ calculation is an effective technique to
more accurately measure how much you need based on important cost factors.
Limitations Of EOQ

 Supply limitations
Inventory shortages are yet another EOQ model drawback. Some companies who are just
starting to use EOQ could be cautious in their reordering, resulting in lesser orders and an
understocked shop.
 Using Assumptions
The EOQ formula takes the idea of steady customer demand for granted. Additionally,
the computation counts on the ordering and holding costs stay constant. Due to this, the
formula finds it difficult or impossible to take into account business events such as
shifting customer demand and seasonal variations in inventory costs.

Part: 2

Annual Requirement: 48000 units

Carrying cost:=15% of per unit cost
Ordering cost= Rs 9 per order
Per unit cost= Rs 4 per unit

a) Most Economical Number of units to be ordered is as follows:

EOQ= 2*Annual requirement *Ordering cost/carrying cost

= 2*48000*9/4*15%
= 864000/0.6
= 1440000
= 1200 Units
b) Number of orders to be placed:
No of times of order to be placed =Annual Requirement/EOQ
=48000/1200
=40 orders

c) Frequency of order :
Order Frequency = Days in the Year / Orders
= 365/40
= 9.1 times