Material

1. A company uses three raw material A, B and C for a particular product for which the
following data apply:
__________________________________________________________________________
Raw
Usage
Re-order
Price
Minimum
Delivery
Maximum Re-order
Minumum
Material per unit
Quantity
per Kg
(in weeks)
Level
Level
Of product (Kgs)
Rs.
Average
(Kgs)
(Kgs)
_______________________________________________________________________________________
A

10

10,000

0.10

8000

5,000

0.30

4,750

10,000

0.15

2,000

Weekly production varies from 175 to 225 units, averaging 200 units of the said product.
What would be the following quantities?
(a) Minimum stock of A
(b) Maximum stock of B
(c) Re-order level of C
(d) Average stock level of A
Study Material Q. N 2
2. A manufacturer uses 200 units of a components every month and he buys them entirely from
the outside suppliers. The order of placing and receiving cost is Rs. 100 and annual carrying
cost is Rs. 12. From this set of data, calculate Economic Order Quantity.
Sanjeev Subedi Q. N 2
3. X Ltd uses three types of material A, B and C for the production of P, the final product.
The relevant monthly data for the components are as given below:

Normal Usage

Units

200

150

180

Minimum Usage

Units

100

100

90

Maximum Usage

Units

300

250

270

Re-order Quantity

Units

750

900

720

2 to 3

3 to 4

2 to 3

Re-order Period
Calculate for each component :(a) Re-order Level
(b) Minimum Level
(c) Maximum Level

(d) Average stock Level

Sanjeev Subedi Q. N 2
4. Shriram enterprise manufactures a special product ZED. The following particulars were
collected for the year 2008.
(a) Monthly demand of ZED 1,000 units
(b) Cost of placing an order Rs. 100
(c) Annual carrying cost per unit Rs. 15
(d) Normal usage 50 units per week
(e) Minimum usage 25 units per week
(f) Maximum usage 75 units per week
(g) Re-order period 4 to 6 weeks
Compute from the above
(1) Re-order Quantity
(2) Re-order Level
(3) Minimum Level
(4) Maximum Level
(5) Average stock Level
Study Material 5
5. M/s Tubes Ltd are the manufacturers of picture tubes for T.V. The following are the details
of their operation during 2007.
Average monthly market demand

2,000 tubes

Ordering cost

Rs. 100 per order

Inventory carrying cost

20% per annum

Cost of tubes

Rs. 500 per tube

Normal usage

100 tubes per week

Minimum usage

50 tubes per week

Maximum usage

200 tubes per week

Lead time to supply

6 8 weeks

Compute from the above:

(1) Economic order quantity. If the supplier is willing to supply quarterly 1,500
units at a discount of 5%, is it worth to accept the proposal?
(2) Maximum level of stock.
(3) Re-order level of stock
(4) Minimum level of stock
Study Material

6. (a) Exe Limited has received an offer of quantity discounts on its order of materials as
under:
Price per tonne

Tonnes

Rs.

Nos.

1,200

Less than 500

1,180

500 and less than 1,000

1,160

1000 and less than 2000

1,140

2000 and less than 3000

1,120

3000 and above

The annual requirement for the material is 5,000 tonnes. The ordering cost per order is Rs.
1,200 and the stock holding cost is estimated at 20% of material cost per annum. You are
required to compute the most economical purchase level.
(b) What will be your answer to the above question if there are no discount offered and the
price per tonne is Rs. 1,500?
Study Material 6
7. Component Pee is made entirely in cost centre 100. Material cost is 6 paisa per

component and each component takes 10 minutes to produce The machine operator
is paid 72 paisa per hour and the machine hour rate is Rs. 1.50. The setting up of the
machine to produce the component Pee takes 2 hours 20 minutes.
On the basis of this information, prepare a cost sheet showing the production and
setting up cost, both in total and per component, assuming that a batch of:
a.

10 components;

b.

100 components;

c.

1000 components is produced

(Students are suggested to go through this problem only after completion of next
two chapter Labour and Overhead)
Cost Compilation Q. N 34
8. JP Limited, manufacturers of a special product, follows the policy of EOQ for one

its components. The components details are as follows:

Rs.
Purchase price per component

200

Cost of an order

100

Annual cost of carrying one unit in Inventory

10% of purchase price

Total cost of inventory and ordering per annum

4,000

The company has been offered a discount of 2% on the price of the component
provided the lot size is 2000 components at a time.
You are required to:

a. Compute the EOQ

b. Advice whether the quantity discount offer can be accepted.
( Assume that the inventory carrying cost does not vary according to discount
policy)
c. Would you advice differ if the company is offered 5% discount on a single order?
Cost Compilation Q. N 61
9. The quarterly production of a companys product which has a steady market is

20,000 units. Each unit of a product requires 0.5 kg of raw material. The cost of
placing one order for raw material is Rs. 100 and the inventory carrying cost is Rs. 2
per annum. The lead time for procurement of raw material is 36 days and a safety
stock of 1,000 kgs of raw material is maintained by the company. The company has
been able to negotiate the following discount structure with the raw material suppier.
Order Quantity

Dicount

Kgs

Rs.

Upto 6,000

NIL

6,000 8,000

400

8,000 16,000

2,000

16,000 30,000

3,200

30,000 45,000

4,000

You are required to

i.Calculate the re-order point taking 30 days in a month.
ii.

Prepare a statement showing the total cost of procurement

and storage of raw material after considering the discount of the company elects
to place one, two, four or six orders in the year.

iii.

State the number of orders which the company should place

to minimize the costs after taking EOQ also in consideration.
Cost Compilation Q. N 67.

10. SK Enterprise manufactures a special product P. The following particulars were

collected for the year 2004.

Annual consumption

12,000 units ( 360 days )

Cost per unit

Rs. 1

Ordering cost

Rs. 12 per order

Inventory carrying cost

24%

Normal lead time

15 days

Safety stock

30 days consumption

Required:

i. Re-order quantity
ii. Re-order level
iii. What should be the inventory level ( ideally ) immediately before the material
order is received?
11. Raw materials X costing Rs. 100 per kilogram and Y costing Rs. 60 per kilogram

are mixed in equal proportions for making product A. The loss of material in
processing works out to 25% of the output. The production expenses are allocated at
50% of direct material cost. The end product is priced with a margin of 331/3% over
the total cost. Material Y is not easily available in the market and the substitute raw
material Z has been found for Y costing Rs. 50 per kilogram. It is required to
keep the proportion of this substitute material in the mixture as low as possible and
at the same time maintain the selling price of the end product at existing levels and
ensure the same quantum of profit as at present.
You are required to compute what should be the ratio of mix of raw material X and
Z.
12. An invoice in respect of a consignment of chemical A and B provides the following

information:
Rs.
Chemical A : 10,000 lbs at Rs. 10 per lb

100,000

Chemical B : 8,000 lbs at Rs. 13 lb

104,000

Sales tax @ 10%

20,400

Railway freight

3,840

Total Cost

228,240

A shortage of 500 lbs in chemical A and 320 lbs in chemical B is noticed due to
normal breakages. You are required to determine the rate per lb of each chemical,
assuming a provision of 2% for further deterioration.
Study Material 14
13. At what price per unit would Part No. A 32 be entered in the Stores Ledger, if the

following invoice was received from a supplier:

___________________________________________________________________
_
Invoice
Rs.
___________________________________________________________________
_
200 units Part No. A 32 @ Rs. 5
100,000
Less: 20% discount
20,000
80,000
Add: Excise duty @15%
12,000
92,000
Add: Packing charges ( 5 non refundable boxes )
5,000
97,000

Notes:
(i) A 2% discount will be given for payment in 30 days.
(ii) Documents substantiating payment of excise duty in enclosed for claiming
MODVAT credit.
14. Add One Problem from Basisthas Book. It does not provide full concept.
15. AT Ltd furnishes the following store transactions for September, 2008:

1-9-2008

Opening Balance

25 units value Rs. 162.50

4-9-2008

Issues Req. No. 85

8 units

6-9-2008

Receipts from B & Co., GRN No. 26

50 units @ Rs 5.75 per unit

7-9-2008

Issues Req. No. 97

12 units

10-9-2008

Return to B & Co.

10 units

12-9-2008

Issues Req. No. 108

15 units

13-9-2008

Issues Req. No. 110

20 units

15-09-2008 Receipts from M & Co., GRN No. 33

25 units @ Rs.6.10 per unit

17-09-2008 Issues Req. No. 12

10 units

19-09-2008 Received replacement from B & Co.,

GRN No. 38
20.9.2008

10 units

Returned from department, material of

M & Co., MRR No. 4

22-9-2008

5 units

Transfer from Job 182 to 187 in the

Department. MTR 6

5 units

26-9-2008

Issues Req. No. 146

10 units

29-9-2008

Transfer from Dept. A to Dept. B MTR 10 5 units

30-9-98

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.
Study Material 16
16. The following information is provided by SUNRISE INDUSTRIES for the fortnight

of April, 2008:
Material Exe:
Stock on 1-4-2008 100 units at Rs. 5 per unit.
Purchases
5-4-2008

300

units

at Rs.6

8-4-2008

500

units

at Rs. 7

12-4-2008

600

units

6-4-2008

250

units

10-4-2008

400

units

14-4-2008

500

units

at Rs. 8

Issues

Required:
(A)

Calculate using FIFO and LIFO methods of pricing issues:

i.

the value of materials consumed during the period.

ii.

The value of stock of materials on 15-4-2008

(B) Explain why the figures in (i) and (ii) in part A of this question are different
under the two methods of pricing of materials issues used. You need not
draw up the Stores Ledger.
Study Material Q. N 17
17. The following transaction in respect of material Y occurred during the month of

June, 2008
__________________________________________________________________
Month
Purchase
Price per unit
Issued Units
___________________________________________________________________
_
January
200
25
Nil
February
300
24
250
March
425
26
300
April
475
23
550
May
500
25
800
June
600
20
400
___________________________________________________________________
_
Required:
a.

The Chief Accountant argues that the value of closing stock

remains the same no matter which method of pricing of material is used. Do you
agree? Why or why not? Detailed stores ledgers are not required.

b.

When and why would you recommend the LIFO method of

pricing material issues?

Study Material 18
18. The following data are available in respect of material X for the year ended 31st

March, 2008.
Rs
Opening stock

90,000

Purchase during the year

270,000

Closing stock

110,000

Calculate:
a.

Inventory turnover ratio;

b.

The number of days for which the average inventory is

held.

Study Material 13