Material Costing

1 1. Setting of Various Stock Level

2 2. How to Calculate EOQ

3. Offer of Quantity Discount

3

4. Inventory Turnover Ratio

4

5. Valuation of Inventory
5
1 Reorder Level = Max. Consumption X Max.
Lead Time 1 A = 75X6 = 450 units
B = 75X4 = 300 units

2 Minimum Level = Reorder level – (Normal

Consumption X Normal Lead time) 2 A = 450 – (50X5) = 200 units
B = 300 – (50X 3) = 150 units

3 Maximum Level = Reorder level + EOQ – (Min.

Consumption X Min. Lead time) 3 A= 450+300-(25X4) = 650 units
B = 300+500-(25X2) = 750 units

4 Average stock Level = Min. level + ½ EOQ

4 A = 200 + ½ x300 = 350 units
B = 500 + ½ x 500 = 400 units
 Linking Excel Sheet with PPT
Solution A1
1 Reorder Level = Max. consumption x Max. lead time
A = 74 x 6 = 444 units
B = 74 x 4 = 296 units

2 Minimum Level = Reorder level - (Normal Consumption x Normal Lead time)

A = 450 - 50 x 5 = 200 units
B = 300 - 50 x 3 = 150 units

3 Maximum Level = Reoderlevel + ROQ - (Min.Cons. * Min Lead time)

A = 500 + 300 - 25 x 4 = 700 units
B = 300 + 500 - 25 x 2 = 750 units

4 Avearge Stock Level = Min. Level + 1/2 ROQ

A = 200 + 1/2 x 300 = 350 units
B = 500 + 1/2 x 500 = 750 units
  

• 
•=
•=
• 2,500 kg
Total annual Order Size No. of orders Cost of Ordering Cost Carrying Cost Total Cost

requirement Inventory

5000 400 12.5 60,00,000 15,000 48,000 60,63,000

500 10 59,00,000 12,000 59,000 59,71,000

1000 5 58,00,000 6000 1,16,000 59,22,000

2000 2.5 57,00,000 3000 2,28,000 59,31,000

3000 1.6667 56,00,000 2000 3,36,000 59,38,000