Computation of effective quantity of each chemical available for us

Particulars Chemical A(Kg.) Chemical B(Kg.)

Quantity Purchased 10,000 8,000
(-) Shortage due to normal breakage 500 320
9,500 7,680
(-) Provision for Deterioration(2%) 190 153.6
Quantity Available 9,310 7,526

Statement showing the computation of rate per.kg. of each chemic

Purchase Page A-10,000@ Rs.10 per. Kg, B-8000@Rs.13 per.

Kg 100,000 104,000
Add: Customs Duty @ 10% 10,000 10,400
Add: Railway Frieght (ratio of quantity Purchased-5:4) 2133 1707 3840
Total Cost(A) 112,133 116,107
Quantity Available(B) 9310 7526
Rate Per.Kg(A/B) 12.044360902256 15.427451501462
ch chemical available for use

rate per.kg. of each chemical

Question:
From the following data, calculate the economic order quantity, Total cost and the re-order point for Part Z:
Working days in a year 200 days
Safety stock 400 units
Lead time 10 days
Order costs 300 per order
Holding cost 15% of cost
Annual consumption 10,000 units
Cost per unit 10 Rs

Solution:
1. Calculation of Economic Order Quantity (EOQ)

U = Annual Usage in units 10,000

P = Order
Annualcost
carrying cost 300
S = per unit 10x15% = 1.5

EOQ =√ 2X10000X300 = 2000 units

1.5
Number of orders per year = Annual usage /Order quantity = 10000/2000 =

2. Total Cost
No. of orders 5
Particulars Amount
Purchase Price=10,000*10 100000
Order size (in units)=(10,000/5) 2000
Average Stock (in units)=2000/2 1000
Holding cost (15% of average stock x Rs 10) 1500
Order Cost (No. of order x per order cost) 1500
Total Cost (Purchase Price+Holding+Order cost) 103000

2. Trial and Error Method to calculate economic order quantity

No. of orders 4 5 6
Particulars Amount Amount Amount
Order size (in units) 2500 2000 1667
Average Stock (in units) 1250 1000 833
Holding cost (15% of average stock x Rs 10) 1875 1500 1250
Order Cost (No. of order x per order cost) 1200 1500 1800
Total Cost (Holding+Order cost) 3075 3000 3050
Lowest cost
3. Calculation or Re-order point

Re-order point = (Average daily usage x the lead time in days) + safety stock
Average daily usage = Annual consumption/Working days in a year
or Average daily usage = 10000/200 = 50
Thus,
Re-order point = 50 x 10 = Rs 500
Add: Safety stock 400
Re-order point = 900 units
point for Part Z:

5 times
Solution

Re-ordering Level
= Max. usage Per. Period*Max. lead time

Particulars Amount
Max. usage Per. Period 20
Max. lead time 15
Re-ordering Level 300

Maximum Level:
= ROL+ROQ-(Min. rate of consumption*Min. lead time)
ROQ

Particulars Amount
Annual Usage in units 5,000
Order cost 20
5
Annual carrying/storage cost per unit
EOQ 200
Min. rate of consumption

Maximum Level= ROL+ROQ-(Min. rate of consumption*Min. lead time)

Particulars Amount
ROL 300
ROQ 200
Min. rate of consumption 10
Min. lead time 5
Maximum Level 450

Minimum Level:
= ROL-(Avg. rate of consumption*Avg. lead time)

Particulars Amount
ROL 300
Avg. rate of consumption 15
Avg. lead time 10
Minimum Level 150

Danger Level:
= Avg. rate of consumption*Lead time for emergency purchases

Particulars Amount
Avg. rate of consumption 15
Lead time for emergency
purchases 4
Danger Level 60
 Statement of Total cost and Ranking

% of Total Unit Total %of Tost

Item Units units cost(Rs.) Cost(Rs.) Cost Ranking
1 7000 3.196347 5 35000 9.837817 4
2 24000 10.9589 3 72000 20.23779 2
3 1500 0.684932 10 15000 4.216207 7
4 600 0.273973 22 13200 3.710262 8
5 38000 17.3516 1.5 57000 16.02159 3
6 40000 18.26484 0.5 20000 5.621609 6
7 60000 27.39726 0.2 12000 3.372966 9
8 3000 1.369863 3.5 10500 2.951345 11
9 300 0.136986 8 2400 0.674593 12
10 29000 13.24201 0.4 11600 3.260533 10
11 11500 5.251142 7.1 81650 22.95022 1
12 4100 1.872146 6.2 25420 7.145066 5
Total 219000 100 355770 100
Cost of Material Consumed Materials A (Rs.) Materials B (Rs.)
Opening Stock 10,000 9,000
Add: Purchase 52,000 27,000
62,000 36,000
Less: Closing Stock 6000 11000
Materials Consumed 56,000 25,000
Average Inventory(Op. Stock+Cl. Stock)/2 8000 10000
Inventory Turnover Ratio=(Consumption/Avg.
Inventory) 7 2.5
Inventory Turnover=No. of days(360)/IT Ratio 51.428571428572 144
Assuming 360 days in a year
A-Fast moving material
B-Slow moving material
Question: Show how the items given ahead relating to purchase and issue of a raw material item will appear in the Stores Led
LIFO, FIFO and Weighted Average Methods of pricing the materials issue:
Price per
2020 Particulars Units unit
Feb. 1 Opening balance 300 20
Feb. 5 Purchase 200 22
Feb. 11 Issue 150 ?
Feb. 22 Purchases 200 23
Feb. 24 Issue 150 ?
Feb. 28 Issue 200 ?

Solution:
First in First Out (FIFO) Method

Store Ledger Account

Receipt Issue Balance
Date
Quantity Rate Amount Quantity Rate Amount Quantity Rate
Jan-01 300 20
Jan-05 200 22 4400 300 20
200 22
Jan-11 150 20 3000 150 20
200 22
Jan-22 200 23 4600 150 20
200 22
200 23
Jan-24 150 20 3000 200 22
200 23
Jan-28 200 22 4400 200 23
Material consumed 10400 Closing Stock

Last in First Out (LIFO) Method

Store Ledger Account
Receipt Issue Balance
Date
Quantity Rate Amount Quantity Rate Amount Quantity Rate
Jan-01 300 20
Jan-05 200 22 4400 300 20
200 22
Jan-11 150 22 3300 300 20
50 22
Jan-22 200 23 4600 300 20
50 22
200 23
Jan-24 150 23 3450 300 20
50 22
 50 23
Jan-28 50 23 1150
50 22 1100 200 20
100 20 2000
Material consumed 11000 Closing Stock

Weighted Average Cost (WAC) Method

Store Ledger Account
Receipt Issue Balance
Date
Quantity Rate Amount Quantity Rate Amount Quantity Rate
Jan-01 300 20
Jan-05 200 22 4400 500 20.8
Jan-11 150 20.8 3120 350 20.8
Jan-22 200 23 4600 550 21.6
Jan-24 150 21.6 3240 400 21.6
Jan-28 200 21.6 4320 200 21.6
Material consumed 10680 Closing Stock

Working Notes
Value of materials on Jan1 6000
Value of materials on Jan5 4400
Total 10400
Total Quantity of items 500
WA rate per unit 20.8
em will appear in the Stores Ledger using

Balance
Amount
6000

10400

7400

12000

9000

4600
4600

Balance
Amount
6000

10400

7100

11700

8250
 8250

4000

4000

Balance
Amount
6000
10400
7280
11880
8640
4320
4320