Material Costing

Topics Various Stock Levels

Normal usage 50 kg per week; Minimum Usage 25 kg per week

Maximum Usage 75 kg per week; Reorder Quantity 300 kg
Reorder Period 4 to 6 week. Calculate i. Reorder Level; ii. Maximum Level
iii. Minimum Level & IV. Average stock level

2. Calculate Maximum stock level, Minimum stock level and Reorder level from the following data
Reordering quantity 1200 units; Reordering period 4 to 6 weeks
Maximum consumption 300 units per week; Minimum consumption 200 units per week; Normal consumption
250 units per week.

3. P ltd furnished the following regarding the details of its manufacturing operation during 2004-
Average monthly market demand 4600 units
Ordering cost Rs. 52 per order; Inventory carrying cost 20% per annum
Cost of materials Rs. 630 per unit; Normal usage 245 units per week
Minimum usage 70 units per week; Maximum usage 380 units per week
Lead time to supply: 4 6 weeks. Compute Maximum Level and Minimum Level of stock.

4. From the following information compute

i. Reorder level, ii. Reorder quantity, iii. Average stock level & iv. Maximum reorder period.
Normal usage 100 units per day; Minimum usage 60 units per day
Maximum usage 130 units per day ; Minimum level 1400 units ; Maximum level 7800 units; Reorder period
Normal 25 days ; Minimum 20 days.

5. Annual consumption of a material of a company is 100000 units at Rs. 2..40 per unit. Each order costs Rs. 90 and
carrying cost is 15% of the annual average value. Company operates 250 days per year. The procurement time is 10
days and safety stock is 1000 units.
Calculate Maximum stock level

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10.

Economic Order Quantity [EOQ]

11. From the following info., find out the Economic order quantity and the number of orders placed in the year

Annual consumption 4000 units

Buying cost per order Rs. 60
Price per unit Rs 10. Storage and carrying cost as a % of average inventory Rs. 3 per unit.

12. The annual demand for an item is 3200 units. The unit cost is Rs. 6 and the inventory carrying cost is 25% pa.
if the cost of an order is Rs. 150, determine
i. EOQ, ii. Number of order per year, iii. Time between two consecutive orders.

13. The Ganges Pump Company uses about 75000 valves per year and the usage is fairly constant at 6250 per
month. The valves cost Rs. 1.50 per unit when bought in quantities and the carrying cost is estimated to be
20% of average inventory investment on the annual basis. The cost to place an order and process the
delivery is Rs. 18. It takes 45 days to receive delivery from the date of an order and a safety stock of 3250
valves is desires.
You are required to determine
i. The most economical order quantity and the frequency of orders,
ii. The order point (reorder level)
iii. The most economical order quantity if the valves cost Rs. 4.50 each instead of Rs. 1.50 each.
14. A factory buys and uses a component for production at Rs. 10 per unit. Annual requirement is 2000 units.
Carrying cost is 10% pa of inventory and ordering coat is Rs. 40 per order. The purchase manager proposes
that as the ordering cost is very high it is profitable to place a single order for the entire annual requirement.
He also says that if we order 2000 units at one time we can get 2% discount from the supplier. Evaluate the
proposal and make your recommendation.
15. A company buys 8000 units of an item for its annual requirements. Each unit costs Rs. 10. The ordering cost
per order is Rs. 30 and the carrying cost is 7.5% of the average inventory per year.
a. Determine the EOQ and the total inventory cost.
b. Should the company accept an offer of 2% discount in price on 4 bigger orders of quarterly
requirements of the material?
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order, while the carrying cost is 10% per year per unit of average inventory. For orders for less than 4000
units, there is no discount on the purchase price of Re. 1 per unit but a discount of 5% is available if order

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 for 4000 units are placed and a discount of 10% for one single order of 8000 units. Which of the three ways
of purchase should the manufacturer adopts?
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for the year 2001
Cost of the Materials per unit --- Rs. 50
Weekly consumption --- 300 units
Ordering cost per order --- Rs. 650
Stock holding cost --- 2% pm (on cost)
Compute a. EOQ, b. Optimum number of orders per year and c. Time lag between two consecutive orders. [Sanjiv
14/2.30]

23. Sachin ltd furnishes the following information

i. Consumption --- 300 units per quarter
ii. Cost per unit --- Rs. 40
Iii Cost of processing an order --- Rs. 600
iv. Obsolescence --- 15%, v. Insurance on Inventory --- 25%
Compute a. EOQ, b. Number of orders per year, c. Time between two consecutive orders.
A supplier offers a discount of 2% on a purchase of 600 units. Should it be accepted? [ Sanjiv 15]

24. P ltd. Furnishes the following regarding the details of its manufacturing operation during 2004 -
Average monthly market demand --- 4600 units
Ordering cost --- Rs. 52 per order

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Inventory carrying cost --- 20% pa
Cost of material --- Rs. 630 per unit
Normal usage --- 245 units per week, Minimum usage --- 70 units per week
Maximum usage --- 380 units per week, Lead time to supply --- 4 6 weeks
Compute Maximum Level & Minimum Level of Stock. [ Sanjivani 22/2.39]

25. KT ltd. provides you the following information

a. Re order level --- 64000 units

b. Re order quantity --- 40000 units
c. Minimum stock level --- 34000 units
d. Maximum stock level --- 94000 units
e. Average lead time in the past --- 2.5 days
f. The difference between maximum and minimum lead times --- 3 days
Determine the maximum and minimum usage rates and lead times. [Basu 19/106]

26. A company manufactures a product from a raw material, which is purchased at Rs. 60 per kg. The company incurs
a handling cost of Rs. 360 plus freight of Rs. 390 per order. The incremental carrying cost of inventory of raw material
is Re. 0.50 per kg per month. In addition the cost of working capital finance on the investment in inventory of raw
material is Rs. 9 per kg per annum. The annual production is 100000 units and 2.5 units are obtained from one kg of
raw material.
Required
i. Calculate the EOQ of raw materials
ii. Advice, how frequently should orders for procurement be placed?
iii. If the company proposes to rationalise placement of orders on quarterly basis, what % of discount in
the price of raw materials should be negotiated? [Rathnam 12/444]

Landed Cost / Material Cost

27. Modern Manufacturing Company Kolkata purchased a material of 20 tonnes from a mining company. The
following data is available for the lot of material purchased
a. Invoice price of material @ Rs. 2000 per tonne
b. Trade discount @ 20% on Invoice Price
c. Excise duty @ 10% on Invoice Price
d. Sales Tax/ GST @ 10%
e. Freight and insurance @ 2%
f. Other charges for delivery @ Rs. 100 per tonne
g. Cost of containers @ Rs. 20 per box of 1 quintal
h. Cost of loading and unloading @ 1 % of total cost
Compute the materials purchased cost and cost per tonne to Modern Manufacturing Company. [ Sanjiv 1]

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Commerce Academy, lotus club lane, Mob- 8837284362

Commerce Academy, lotus club lane, Mob- 8837284362
Commerce Academy, lotus club lane, Mob- 8837284362
Commerce Academy, lotus club lane, Mob- 8837284362
Commerce Academy, lotus club lane, Mob- 8837284362