COST ACCOUNTING – I

Module III : Material Costing

Example 1 :
Two materials A and B are used as follows :

Minimum usage 5,000 units per week each

Maximum usage 15,000 units per week each
Normal usage 10,000 units per week each
Re order quantity A – 60,000 units B – 100,000 units
Delivery period A – 4 to 6 weeks B – 2-4 weeks
Calculate the various stock levels.

Example 2 :
Calculate Economic Order Quantity from the following information:

Estimated requirement per annum 60,000 units

Cost per unit Rs. 20
Ordering cost per order Rs. 12
Carrying cost 5% p.a.

Example 3 : (HW)
Two components X and Y are used as follows :

Normal usage 6,000 units per week each

Maximum usage 9,000 units per week each
Minimum usage 3,000 units per week each
Re order quantity X–48,000 units; Y-72,000 units
Re order period X- 4 to 6 weeks; Y – 2 to 4 weeks
Calculate the various stock levels for both materials

Example 4 :
The annual demand for a raw material is 6,400 units. Inventory carrying cost is Rs. 1.50 per
unit per annum. If the cost of one procurement is Rs. 75, determine :
a) Economic order quantity
b) Number of orders per year
c) Time between two consecutive orders
Example 5 : (HW)
Determine the EOQ from the following information :

Annual consumption 12,000 units

Cost of ordering Rs. 15 per order
Cost of material Rs. 1.25 per unit
Carrying cost 20% p.a.

Example 6 : (HW)
From the following information you are required to calculate for each product :
1) Re order level
2) Maximum stock
3) Minimum Stock
4) Average Stock

Material X Material Y
Average consumption per week 500 500
Minimum requirement per week 250 250
Maximum usage per week 750 750
EOQ 3,000 5,000
Replacement time 4 to 6 weeks 2 to 4 weeks

Example 7 :
Shriram enterprises manufactures a special product ZED. The following particulars were
collected for the year 2017 :
a) Monthly demand for ZED – 10000 units
b) Cost of placing an order Rs. 1500/-
c) Annual carrying cost per unit Rs. 30/-
Details of Raw Material Consumption :
d) Normal Consumption 500 units per week
e) Minimum Consumption 250 units per week
f) Maximum Consumption 750 units per week
g) Re order period 4-6 weeks

Compute the ROQ, ROL, Minimum level, Maximum level and Average Stock level from the
above information assuming 50 weeks for one year.

Example 8 :
In manufacturing its product Z, a company uses two raw materials A and B, in respect of which
the following information is supplied.
One unit of Z requires 10 kgs of A and 4 kgs of B materials. Price per kg of A material is Rs. 10
and that of B is Rs. 20. Re order quantities of A and B materials are 10,000 kgs and 5,000 kgs.
Re order level of A and B materials are 8,000 kgs and 4,750 kgs respectively. Weekly
production varied from 175 units to 225 units averaging 200 units. Delivery period of A
material is 1 to 3 weeks and B material is 3 to 5 weeks.
Compute the various stock levels.

Example 9 :
a) The monthly demand of a Product is 5000 units. The company requires 50 kg of raw
material for each unit of the product. The supplier of the said raw material, M/s Shah
and Company, sells the said raw material at a cost of Rs. 250 per unit. The ordering
cost paid per order by the company is Rs. 400 and the storage cost per unit per annum
is Rs. 24. You are required to calculate the Economic Order Quantity and number of
orders during the year.

(F.Y. B. Com (Honours) – Final Exam –November 2018)

b) A company manufactures 1500 units of product EXE per month at a cost of Rs. 150 per
unit. It requires ten units of raw material to manufacture one unit of EXE. The raw
material is supplied to the company at Rs. 12 per unit. The supplier is willing to give a
discount of Rs.2 if the company commits to buy at least 1,00,000 units per annum. The
cost of procurement for the company is Rs. 50 for every 2 orders. The cost of storage
is 10% p.a. You are required to find the optimum quantity that the company should
order to minimize cost.
(F.Y.B. Com (Honours) – Mid Term Exam – November 2019)

Example 10 :

Find the Annual Inventory Cost for Eg 9 (a) and (b)

Example 11 :
Maxis Enterprises manufactures a special product MAC. The following particulars were
collected for the year 2021 :

a) Monthly demand for MAC – 15000 units

b) Cost of placing an order Rs. 1600/-
c) The Cost per unit of Raw materials is Rs. 200
d) Carrying Cost is 2.5% per quarter
e) Normal Consumption 500 units per week
f) Minimum Consumption 250 units per week
g) Maximum Consumption 750 units per week
h) Re order period 4-6 weeks
Assuming a period of 50 weeks, you are required to calculate all the Material Levels and the
Annual Inventory Cost of the company. Would it be beneficial for the company to order 4000
units per order instead?
(Note : Do not round off partial orders)
(January 2022 – TEE – FYBCom (Honours)
Example 12 :

Harsha Limited produces a product which has a monthly demand of 4000 units. The product
required a component X which is purchased at a cost of Rs. 20 p.u. For every finished product,
one unit of component X is required. The ordering cost is Rs. 120 per order and the holding
cost is 2.5% per quarter. You are required to calculate
(i) EOQ
(ii) If the minimum lot size to be supplied is 4000 units, what is the extra cost to be
incurred?

Example 13 :
The following is the relevant data for one of the components bought by Mazda Limited :

Ordering Cost Rs. 50

Holding Cost 40% p.a.
Cost per component Rs. 100
Annual Demand 1,000 units

The purchase manager placed 5 orders of equal quantity in order to avail the discount of 5%
on the cost of the components. Work out the gain or loss to the organisation due to his
ordering policy for the component.
STOCK LEDGER
Example 14 :
From the following transactions, prepare a stores ledger account using FIFO method :

July 2015 Doc

1 Opening stock 5000 units @ Rs. 20 each
4 Purchased GRN 574 4000 units @ Rs. 21 each
6 Issued SR 251 6000 units
8 Purchased GRN 578 8000 units @ Rs. @24
9 Issued SR 258 5000 units
13 Issued SR 262 3000 units
24 Purchased GRN 584 5000 units @ Rs. 25 each
28 Issued SR 269 4000 units
GRN = Goods received note and SR = Stores requisition.

Example 15 :
The following is the summary of the receipts and issue of materials in a factory during
January :

January Particulars
1 Opening stock 500 units at Rs. 25 per unit
5 Issued 250 units
13 Received from suppliers 200 units at Rs. 24.50 per unit
14 Returned to stores 15 units at Rs. 24 per unit
16 Issued 180 units
20 Received from suppliers 240 units at Rs. 24.75
24 Issued 304 units
25 Received from suppliers 320 units at Rs. 24.50 per unit
26 Issued 112 units
27 Returned to stores 12 units out of the issue dated 16 th
28 Received from suppliers 100 units Rs. 25 per unit
You are required to prepare the stores ledger on the basis of First in first out. The physical
verification revealed that on the 15th, there was a shortage of five units and another on the
27th of eight units.

Example 16 :
Prepare stores ledger as per FIFO.The following is the record of receipts and issues of a
certain material in the factory during a week

April 2015 Particulars

1 Opening balance 50 tonnes @ Rs. 10 per tone
Issued 30 tonnes
2 Received 60 tonnes @ Rs. 10.20 per tone
3 Issued 25 tonnes (also stock verification reveals loss of
additional 1 tonne)
4 Received back from 10 tonnes (Previously issued at Rs. 9.15 per
orders tonne)
5 Issued 40 tonnes
6 Received 22 tonnes @ Rs. 10.30 per tone
7 Issued 38 tonnes

Example 17 :
The following transactions occur in the purchase and issue of a material :

Date Details Units Rate per unit

Jan 2 Purchased 4,000 Rs. 4.00
Jan 20 Purchased 500 Rs. 5.00
Feb 5 Issued 2,000 --
Feb 10 Purchased 6,000 Rs. 6.00
Feb 12 Issued 4,000 --
Mar 2 Issued 1,000 --
Mar 5 Issued 2,000 --
Mar 15 Purchased 4,500 Rs. 5.50
Mar 20 Issued 3,000 --
From the above, prepare the Stores Ledger Account as per FIFO method of charging material
issues.

Example 18 :
From the following details of stores receipts and issues of material X, prepare a Stores
Ledger Account using weighted average price method.

Dec
1 Opening stock 2000 units @ Rs. 5 each
3 Issued 1500 units to production
 5 Received 4500 units @ Rs. 6 each
8 Issued 1600 units to production
10 Returned to stores 100 units by production (from issue of
Dec. 3)
16 Received 2400 units @ Rs. 6.50
18 Retuned to supplier 200 units (out of receipt on Dec. 5)
20 Received 1000 units @ Rs. 7.00
24 Issued 2100 units to production
28 Received 1200 units @ 7.50 each
30 Issued 2800 units to production
Note : Calculate issue rate upto two decimal points.

Example 19 :
The following were the receipts and issues of material ZED during March 2005.

March Particulars
1 Opening balance – 1100 units Rs. 60 per unit
3 Issue - 140 units
4 Issue - 250 units
8 Issue – 210 units
13 Received from vendor 400 units at Rs. 59 per unit
14 Refund of surplus from a work order 30 units at Rs. 58 p.u.
16 Issue 350 units
20 Received from vendor 480 units at Rs. 62 per unit
24 Issue 608 units
25 Received from vendor 640 units at Rs. 60 per unit
26 Issue 524 units
28 Refund of surplus from a work order 24 units (issued on March 3)
31 Received from vendor 150 units at Rs. 64 per unit
From the above, write the Stores Ledger Account on FIFO and weighted Average Basis.

Example 20 :

The EOQ of a particular Company during a particular year was 2100 units. The holding cost
comes to 2% p.a. The cost per unit of the raw material is Rs. 500. Calculate the Annual
Ordering Cost for the company for the given year.
(BCom (H) Mid term Examination – November 2022)