COSTING LIVE

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Material Costing

CA Saurav Jindal
 COSTING LIVE
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 COST YOUTUBE QUESTIONS 1

MATERIAL COSTING

Question‐ 1
A company has a 5,000 gallon‐ tank to store a chemical. When the contents of the tank
become low, deliveries are made direct from a major chemical manufacturer. The past
record shows the following details about the lead time:

Lead Time No. of Occasions

0‐ 2 days 3
2‐4 days 10
4‐6 days 26

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6‐8 days 6
8i10 days 5

If the usage is 200 gallons per day, Calculate‐

i. Mean lead time demand
ii. Reorder point
iii. Safety stock/Minimum level

Question‐ 2
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.

TEACHING
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 and
(d) Average Stock level.

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 COST YOUTUBE QUESTIONS 2

Question‐ 3

In manufacturing its product, a company uses three raw materials A, B, C in respect of

which the following apply:
Raw Usage per Re‐order Price Delivery Order Minimum
Material unit of quantity per kg Period level level
product (Kg) (Kg) (₹) (weeks) (Kg) (Kg)

A 10 10,000 0.10 1 to 3 8,000 ‐‐

B 4 5,000 0.30 3 to 5 4,750 ‐‐
C 6 10,000 0.15 2 to 4 ‐‐ 2,000

Weekly production varies from 175 to 225 units, averaging 200. What would you expect

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the quantities of the following to be:
(a) Minimum stock of A,
(b) Maximum Stock level of B,
(c) Re‐ order level of C, and
(d) Average Stock level of A?

Question‐ 4
If the price of the material is ₹ 15 per unit and the annual consumption is 4,000 units, the
interest and store keeping charges are 20 percent of the value and the cost of placing an
order and receiving the goods is ₹ 60, how much material should be ordered at one time?
Question‐ 5
The following information pertaining to a firm are available:
Annual consumption 12,000 units ( 360 days)

TEACHING
Cost per unit ₹1
Cost per order ₹ 12
Inventory carrying cost (%) 20
Lead time (maximum, normal & minimum) (Days) 30 – 15 – 5
Daily consumption (maximum, normal & minimum) (units) 45 – 33 – 15

Calculate inventory levels.

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 COST YOUTUBE QUESTIONS 3

Question‐ 6

Ganges Pump Company Ltd. uses about 75,000 valves per year and the usage is fairly
constant at ₹ 6,250 per month. The valve cost of ₹ 1.50 per unit when bought in large
quantities, and the carrying cost is estimated to be 20 percent of the average inventory
investment on an annual basis. The cost to place an order and process the delivery is ₹ 18.
It takes 45 days to receive delivery from the date of an order and a safety stock of 3,250
valves is desired.
You are required to determine:
(i) The most economical order quantity and frequency of orders,
(ii) The order point, and

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(iii) The most economical order quantity if the valves cost ₹ 4.50 each instead of ₹
1.50 each.

Question‐ 7

M/s Tubes Ltd. are the manufacturers of picture tubes for T.V. the following are the details
of operation during the current year:

Average monthly market demand (tubes) 2,000

Ordering Cost (per order) ₹ 100
Inventory carrying cost (per cent per annum) 20
Cost of tubes (per tube) ₹ 500
Normal usage (tubes per week) 100
Minimum usage (tubes per week) 50
Maximum usage (tubes per week) 200

TEACHING
Lead time to supply (weeks) 6‐8

Compute from the above:

1. Economic order quantity. If the supplier is willing to supply quarterly 1,500 units at a
discount of 5 percent, is it worth accepting?
2. Maximum level of stock
3. Minimum level of stock
4. Re‐order level.

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 COST YOUTUBE QUESTIONS 4

Question‐ 8

RST Limited has received an offer of quantity discount on its order of materials as under:
Price (₹) per tonne Tonnes number
9,600 Less than 50
9,360 50 and less than 100
9,120 100 and less than 200
8,880 200 and less than 300
8,640 300 hundred and above

The annual requirement for the material is 500 tonnes. The ordering cost per order is ₹
12,500 and the stock holding cost is estimated at 25 percent of the material cost per

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annum.
Required:
(i) Compute the most economical purchase level.
(ii) Compute EOQ if there are no quantity discounts and the price per tonne is ₹ 10,500.

Question 9
ZED Company supplies plastic crockery to fast food restaurants in metropolitan city. One of
its products is a special bowl, disposable after initial use, for serving soups to its
customers. Bowls are sold in pack 10 pieces at a price of Rs. 50 per pack. The demand for
plastic bowl has been forecasted at a fairly steady rate of 40,000 packs every year. The
company purchases the bowl direct from manufacturer at Rs. 40 per pack within a three
days lead time. The ordering and related cost is Rs. 8 per order. The storage cost is 10% per
annum of average inventory investment.
Required:

TEACHING
i (i) Calculate Economic Order Quantity.
ii (ii) Calculate number of orders needed every year.
iii (iii) Calculate the total cost of ordering and storage bowls for the year.
iv (iv) Determine when the next order should be placed. (Assuming that the company
does maintain a safety stock and that the present inventory level is 333 packs with a year
of 360 working days.

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 COST YOUTUBE QUESTIONS 5

Question 10
M/s Tyrotubes trades in four‐wheeler tyres and tubes. It stocks sufficient quantity of tyres
of almost every vehicle. In year end 2017‐18, the report of the sales manager revealed
that M/s Tyrotubes experienced stock‐out of tyres.
The stock‐out data is as follows:
Stock‐out of Tyres No. of Times
100 2
80 5
50 10
20 20
10 30
0 33

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M/s tyrotubes loses ₹ 150 per unit due to stock‐out and spends ₹50 per unit on carrying of
inventory.
Determine optimum safest stock level.

Question 11
From the following details, draw a plan ABC Selective control:

ITEM UNITS UNIT COST

1 7,000 5.00
2 24,000 3.00
3 1,500 10.00
4 600 22.00
5 38,000 1.50
6 40,000 0.50

TEACHING
7 60,000 0.20
8 3,000 3.50
9 300 8.00
10 29,000 0.40
11 11,500 7.10
12 4,100 6.20

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 COST YOUTUBE QUESTIONS 6

Question 12

An invoice in respect of a consignment of chemicals A and B provides the following

information:
Chemical A: 10,000 kgs. At ₹ 10 per kg. 1,00,000
Chemical B: 8,000 kgs. At ₹ 13 per kg. 1,04,000
Basic custom duty @ 10% (credit is not allowed) 20,400
Railway freight 3,840
2,28,240

A shortage of 500 kgs. in chemical A and 320 kgs. in chemical B is noticed due to normal
breakages. You are required to determine the rate per kg. of each chemical, assuming a

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provision of 2% for further deterioration.

Question 13

At what price per unit would Part No. 32 be entered in the stores ledger, if the following
invoice was received from the supplier:
Invoice ₹
200 units @ ₹ 5 1,000.00
Less: 20% discount 200.00
800.00
Add: IGST @ 12% 96.00
896.00
Add: Packing charges 50.00
946.00

TEACHING
a.) A 2% cash discount will be given if payment is made within 30 days.
b.) IGST is available as INPUT CREDIT.

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 COST YOUTUBE QUESTIONS 7

Question 14

The Panasonic Corporation manufactures wireless telephone. Panasonic is deciding

whether to implement a JIT production system, which would require annual tooling costs
of ₹ 1,50,000.
Panasonic estimates that the following annual benefits would arise from JIT production:

a.) Average inventory would decline by ₹ 7,00,000 from ₹ 9,00,000 to ₹ 2,00,000.

b.) Insurance, space, materials‐handling, and set‐up costs, which currently total ₹
2,00,000 would decline by 30%
c.) The emphasis on quality inherent in JIT systems would reduce rework costs by 20%.
Panasonic currently incurs ₹ 3,50,000 on rework.
d.) Better quality would enable Panasonic to raise the selling prices of its products by ₹

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3 per unit. Panasonic sells 30,000 units each year.

Panasonic carrying cost of inventory is 12% per year.

Required: Calculate the net benefit or cost to the Panasonic Corporation from
implementing a JIT production system.

Question 15
The following data is available in respect of material X for the year ended 31st March 1997:
Opening Stock ₹ 90,000
Purchases during the year ₹ 2,70,000
Closing Stock ₹ 1,10,000
Calculate:
(i) Inventory turnover Ratio; and

TEACHING
(ii) The number of days for which the average inventory is held.

Question 16
Calculate the material turnover ratio for the year 1999 from the following detail:

Particulars Material X Material Y

Opening Stock 25,000 87,500
Closing Stock 15,000 62,500
Purchases 1,90,000 1,25,000
Determine the fast‐moving material.

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 COST YOUTUBE QUESTIONS 8

Question 17
AT Ltd. furnishes the following store transactions for September 2011:
1‐9‐11 Opening balance 25 units value at ₹ 162.50
4‐9‐11 Issues Req. No. 85 8 units
6‐9‐11 Receipts from B & Co. GRN No. 26 50 units @ ₹ 5.75 per unit
7‐9‐11 Issues Req. No. 97 12 units
10‐9‐11 Return to B & Co. 10 units
12‐9‐11 Issues Req. No. 108 15 units
13‐9‐11 Issues Req. No. 110 20 units
15‐9‐11 Receipts from M & Co. GRN No. 33 25 units @ ₹ 6.10 per unit
17‐9‐11 Issues Req. No. 121 10 units
19‐9‐11 Received replacement from B & Co. GRN No. 38 10 units

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20‐9‐11 Returned from department, material of M & Co. MRR No. 4 5 units
22‐9‐11 Transfer from Job 182 to Job 187 in the dept. MTR 6 5 units
26‐9‐11 Issues Req. No. 146 10 units
29‐9‐11 Transfer from Dept. “A” to Dept. “B” 5 units
30‐9‐11 Shortage in stock taking 2 units

Write up the priced stores ledger on FIFO method and discuss how would you treat the shortage
in stock taking.

Question 18
Following information relating to a particular material are available in the cost records of
Bhalu Ltd. for the month of April, 2016:
Purchases Units Rate per unit Freight Charges
(Rs.) (Rs.)
3 April 20000 15 15000
20 April 15000 16 13500

TEACHING
30 April 10000 18 11000

Opening inventory: 8000 units @ Rs. 15.50 including freight on 1st April, 2016
Closing inventory: 15000 units on 30th April

You are required to calculate (i) Value of closing stock, (ii) Cost of raw material consumed
by following (a) FIFO, (b) LIFO, and (c) Weighted Average Cost Method of issue assuming
that no issue can be made on the last day of the month.

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