Model Test – IPCC – Material cost

Model Test – IPCC – Material cost

Model Test – IPCC

MATERIAL COSTING

SUGGESTED ANSWER

Qtn 1. About 50 items are required every day for a machine. A fixed cost of Rs. 50 per order is incurred for placing an order. The Inventory carrying cost per item amounts to Rs. 0.02 per day. The lead period is 32 days. Compute:

(i) Economic order quantity.

(ii) Re-order level.

(4 Marks)

 

Qtn 2. PQR limited produces a product which has monthly demand of 52,000 units.            The product requires a component X which is purchased @ Rs.15/unit. For every finished product,2 units of component X are required. The ordering cost is Rs.350/order and the carrying cost is 12% p.a.

 

         Required:

Ø      Calculate the economic order quantity for component X.

Ø      If the minimum lot size to be supplied is 52,000 units, what is the extra cost the company has to incur?

(4 Marks)

 

Qtn 3.

(vi) The following information relating to a type of raw material is available:

 

Annual demand           2,000 units                      storage cost             2% p.a

Unit price                     Rs.20                              interest rate             8% p.a

Ordering cost /order     Rs 20                              Lead time               ½ month

 

Calculate EOQ and total annual inventory cost of the raw material.

(4 Marks)

Qtn 4. Short notes on;-

1. Stores Layout
2. Stock Control Cards

(2*2 =4 Marks)

 

Qtn 5. Distinguish between Re-Order Level and Re-Order Quantity

(4 Marks)

 

Ans 1:

 

(i) EOQ =    

 

 

√(2AB) / C

 

Where: A (ie. Annual consumption)  = 50 items × 365 days = 18,250 items

B (Ordering cost per order) = Rs. 50

C (carrying cost per item per annum) = Rs. 0.02 × 365 = Rs. 7.30

 

EOQ =

 

√ 2 X 18,250 units X Rs. 50

                        Rs. 7.30

=500 units

 

(ii) Re-order level = Maximum usage per day × Maximum lead time

= 50 items per day × 32 days

= 1,600 items

 

 

Ans 2:

                    

1. EOQ =  √ 2AB/C , Where

 

               A = Annual requirement of RM = 52,000 X 12 months = 12,48,000 units.

               B = Buying cost per order = Rs.350

               C = Carrying cost per unit per annum = Rs.15 X 12% = Rs.1.80 p.u.p.a

 

    EOQ = 22,030 units.

2. Cost Comparison of EOQ with purchase policy of 52,000 units:

 

Particulars	Quantity ordered every time(a)	No. of Orders p.a (b)	Buying cost p.a @ Rs.350(c)	Average Inventory(d) = ½ of (a)	Carriying cost p.a @ Rs.1.80 (e)	Associated cost p.a = (c)+(e)
EOQ	22,030 units	12,48,000/22,030 =56.65 orders	56.65 X Rs.350 = Rs.19,828	½ X 22,030 = 11,015 units	11,015 X Rs.1.80 = Rs.19,827	Rs.39,655
Minimum lot size	52,000 units	12,48,000/52,000 = 24 orders	24 X Rs.350 = Rs.8,400	½ X 52,000 = 26,000 units	26,000 X Rs.1.80 =Rs.46,0800	Rs.55,200

Hence, additional cost by ordering 52,000 units every time = Rs.55,200- Rs.39,655 = Rs.15,545

 

Ans 3:

EOQ is calculated as under:

1. EOQ =  2AB/C, where	A = Annual requirement of RM = 2,000 units (given) B= Buying cost per order = Rs. 20 per order (given) C= carrying cost per unit per annum = Rs.20 X 10% (i.e. 2%+ 8%) = Rs.2.p.u.p.a   On substitution, EOQ = 200 units
2. Inventory carrying cost per unit per annum	= Average Inventory (i.e. ½ of EOQ) X carrying cost/unit/annum = 100 units X Rs.2.p.u.p.a = Rs.200
3. Associated costs p.a	= Buying cost p.a + carrying cost p.a = Rs.200 (see note) + Rs. 200 = Rs.400.   Note: At EOQ, buying cost p.a = carrying cost p.a