Professional Documents
Culture Documents
Problems on Materials
Short Problems
3. A company uses raw material ‘ A’ for a product for which the following information is
available :
Re-order quantity 10,000 kgs, usage per unit of product 10 kgs.
Delivery period in weeks : Minimum 1 , Average 2 , Maximum 3.
Weekly production varies from 175 to 225 units averaging 200 units.
You are required to calculate :
(a) Re-order level (b) Maximum stock level (c) Minimum stock level (d)
Average stock level.
4. Find the Economic Order Quantity when the annual consumption is 1,800 units, price
per unit 32 paise, ordering cost Rs. 2 per order and storage cost is 25 % of stock
value. What happens if a different quantity is ordered ?
5. A manufacturer buys certain equipment from outside suppliers at Rs. 30 per unit. Total
annual needs are 800 units. The following further data are available. Annual return on
investment = 10 % ; Rent, inusrance, taxes per unit per year Re. 1 ; Cost of placing
an order = Rs. 100. Determine the economic order quantity.
6. Find out the Economic Order Quantity for raw materials and packing materials with the
following data given to you :
Cost of Ordering Raw Materials Rs. 1,000 per order.
Packing Materials Rs. 5,000 per order.
Cost of holding inventory Raw Materials 1 p. Per unit per month.
Packing Materials 5 p. Per unit per month.
Production rate 2,00,000 units per month.
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7. After inviting tenders, two quotations are received as follows :
(a) Rs. 1.20 per unit ; (b) Rs. 1.10 per unit plus Rs. 3,000 fixed charges to be
added irrespective of units ordered. Advise with your arguments with whom orders to be
placed and what quantity is to be ordered.
8. Given : Cost of Materials 500 kgs @ Rs. 10 per kg. Insurance Rs. 86, Freight Rs.
175. Due to mishandling in transit, 10 units are lost. At what rate can this material be
issued to production.
9. The annual accounts of a trading company are to be made up to December 31st but it
was not possible to carry out stock taking until January 5 at which date stock was valued
at cost at Rs. 68.567. The following transactions took place between 1st and 5th
January.
Goods received Rs. 4,600, Goods returned Rs. 200, Sales Rs. 10,500; Returns by
customers Rs. 625. The rate of gross profit is 25 % of cost.
Prepare a statement to show the valuation of stock as at December 31st .
10. In pricing the gallons of petrol sold, service station A follows the First in First out
method, while service station B follows the LIFO method. On 1st January, both had
the same quantity in stock, viz., 6,000 gallons at Rs. 2.60 per gallon. During the
month, each station received additional supplies of 6,000 gallons at Rs. 2.75 per
gallon. Sales of these two stations during the month were 8,000 gallons at Rs. 2.90
per gallon. Determine for each service station the profit earned during the month and
value of petrol in stock at the close of the month.
Main Problems
3. From the particulars stated here under (a) show how the maximum, minimum, Reorder
and average stock levels would be calculated.
4. The Ganges Pump Company uses about 75,000 valves per year and the usage is fairly
constant at 6,250 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 an annual basis. The cost to
place an order and process the delivery is Rs. 18. It takes 45 days to receive from the
date of an order and a safety stock of 3,250 valves is required.
5. A wholesaler supplies 30 stuffed dolls each weekday to various shops. Dolls are
purchased from the manufacturer in lots of 120 each at Rs. 1,200 per lot. Every order
incurs a handling charge of Rs. 60 plus a freight charge of Rs. 250 per order. Multiple
and fractional lots also can be ordered and all orders are filled the next day. The
incremental cost is Rs. 0.60 per year to store a doll in inventory. The wholesaler
finances inventory investment by paying its holding company 2 % monthly for borrowed
funds.
(a) How many dolls should be ordered at a time to minimize the total annual inventory
cost ? Assume that there are 250 week days in a year. (b) How frequently should he
order ?
6. Your factory buys and uses a component for production at Rs. 10 per piece. Annual
requirement is 2,000 numbers. Carrying cost of inventory is 10 % p.a. and ordering
cost is Rs. 40 per order. The purchase manager argues that as the ordering cost is
very high, it is advantageous to place a single order for the entire annual requirement.
He also says that if we order 2,000 pieces at a time, we can get a 3 % discount from
the supplier. Evaluate this proposal and make your recommendation.
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The annual demand for the material is 4,000 tons. Stock holding costs are 20 %
of material cost per annum. The delivery cost per order is Rs. 6.00. You are required
to calculate the best quantity to order.
8. When tenders were invited for a store, quotations were received as under :
Supplier A
(a) Rate Rs. 2 each (b) Trade discount 10 % (c) Cash discount 5 % if bills are
paid within a fortnight after receipt (d) Transport charges Re. 1 per 100 units.
Supplier B
(a) Rate Re. 1.80 each (up to 1,000 units) Re. 1.60 each (for order above 1,000
units), (b) 6 % interest per annum will be added if bills are not paid within a fortnight
after receipt of material, (c) Transport charges Rs. 3 per 100 units.
Assuming about 5,000 units are required every month and that quality and other
conditions of supply are the same, offer your comments as to whom purchase order can
be issued. The factory pays 50 % of its monthly bills every fortnight.
9. A lorry load of materials of mixed grade was purchased for Rs. 9,000. They were sorted
into the following grade whose market rate is shown against each.
10. The following quotation is received from a supplier in respect of a material. The lot prices
are (a) 1,000 units Rs. 5.00 each (b) 2,000 units Rs. 4.75 each (c) 3,000 units
Rs. 4.00 each.
Trade discount = 25 %, Freight charges per order Rs. 100.
Containers are charged at Re. 0.50 each, one container is required for every
100 units and if containers are returned within 10 months, credit would be received at
Re. 0.20 each.
Calculate the material cost for 3,000 units assuming that the purchaser decided to
purchase this lot.
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11. The following details are available in respect of a consignment of 1,250 kgs of material
‘X’.
(a) Invoice price Rs. 20 per kg.
(b) Excise Duty 25 % on invoice price
(c) Sales Tax 8 % on invoice price including excise duty
(d) Trade discount 10 % on invoice price
(e) Insurance 1 % of aggregate net price
(f) Delivery charges Rs. 250
(g) Cost of containers @ Rs. 60 per container for 50 kgs of material. Rebate is
allowed @ Rs. 40 per container if returned within six weeks, which is normal
feature
(h) One container load of material was rejected on inspection and not accepted
(i) Cost of loading, unloading and handling @ 0.25 of the cost of materials
ultimately accepted.
On the basis of above, you are required to find out the landed cost of per kg of material
‘X’.
12. Adarsh Company purchased and issued material in the following order :
Ascertain the quantity of closing stock as on 31st January and state its value under each
of the following method of pricing the issues (a) Weighted average cost (b) FIFO and
(c) LIFO.
13. The stock in hand of a material as on 1st September 1979 was 500 units at Re. 1 per
unit. The following purchase and issues were subsequently made. Prepare the Stores
Ledger Account showing how the value of issues would be recorded under (a) FIFO
and (b) LIFO Methods.
Purchased Issued
September 6th 100 units Rs. 1.10 September 9th 500 units
September 20 th 700 units Rs. 1.20 September 22nd 500 units
September 27 th 400 units Rs. 1.30 September 30th 500 units
October 13 th 1,000 units Rs. 1.40 October 15th 500 units
October 20 th 500 units Rs. 1.50 October 22nd 500 units
November 17 th 400 units Rs. 1.60 November 11th 500 units
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14. On 1st March 1979, twelve tons of a material was in stores, which was valued at the
rate of Rs. 140 per ton. On 3rd March 1979, fifteen more tons of material was received
at Rs. 150 per ton. On 5th March 1979, twenty tons of material was issued. Calculate
the price of issues and value of closing stock, if the issue of material is priced according
to (i) FIFO method (ii) LIFO method (iii) Weighted average method.
16. From the following particulars, prepare the Stores Ledger Account under two methods of
pricing materials : (a) FIFO method, (b) Simple Average Method. Find out the value
of material on the last date of the month.
17. The following transactions occur in the purchases and issue of material.
Prepare the stock account showing the balance on March 31st the end of accounting
year. State clearly your method of pricing and value of the closing stock.
18. Bharat Petroleum closes its accounts at the end of each month. The following
information is available for the month of April 1983.
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Rs.
Sales 5,00,000
Administrative expenses 40,000
Inventory : April 1st 1983, 100 tons @ Rs. 1,000 per ton 1,00,000
Purchases
April 10th, 200 units @ Rs. 900 per ton 1,80,000
April 20th, 200 units @ Rs. 800 per ton 1,60,000
Inventory : April 30th 1983, 100 tons
19. From the following particulars, write up the priced stores ledger card according to base
stock method when it operates in conjunction with (a) FIFO method and (b) LIFO
method. Base stock is 200 units.
Jan 1st 1986 Purchased 500 tons @ Rs. 2.00 per ton.
Jan 10th 1986 Purchased 300 tons @ Rs. 2.10 per ton.
Jan 15th 1986 Issued 600 tons
Jan 20th 1986 Purchased 400 tons @ Rs. 2.20 per ton.
Jan 25th 1986 Issued 300 tons
Jan 27th 1986 Purchased 500 tons @ Rs. 2.10 per ton.
Jan 31st 1986 Issued 200 tons.
20. From the following information, prepare stores ledger account showing the issue of ‘N’
material on LIFO method and give the value of stock at the end of the period.
21. Set up a “Stores Ledger” form and enter the following transactions adopting the
weighted average method of pricing out issues :
22. The following is an extract of the record of receipt and issue of Sulphur in a chemical
factory during a month.
The stock verifier has found a shortage of 10 tons on 22nd and left a note accordingly.
Draw up a priced store ledger card for the material showing the above transactions.
23. The following is the record of receipts and issues of a certain material in factory during a
week.
Dec 1st 1979 Opening balance 50 tons @ Rs. 10.00 per ton.
Dec 2nd 1979 Issued 30 tons
Dec 3rd 1979 Received 60 tons @ Rs. 10.20 per ton.
Dec 4th 1979 Issued 25 tons (stock verifier reveals
loss of one ton)
Dec 5th 1979 Received back from work 10 tons (previously issued
@ Rs. 9.90 per ton)
Dec 6th 1979 Issued 40 tons
Dec 7th 1979 Received 22 tons @ Rs. 10.30 per ton.
Dec 8th 1979 Issued 33 tons.
24. The Stores Ledger Account for Material X in a manufacturing concern reveals the
following data for the quarter ended 30th September 1993.
Receipts Issues
Quantity Price Quantity Amount
July 1st 1,600 2.00 ----- -----
July 9th 3,000 2.20 ----- -----
July 13th 1,200 2,556
August 5th 900 1,917
August 17th 3,600 2.40
August 24th 1,800 4,122
Sept 11th 2,500 2.50
Sept 27th 2,100 4,971
Sept 29th 700 1,656
Physical verification on September 30th 1993 revealed an actual stock of 3,800 units.
You are required to :
(a) Indicate the method of pricing employed in the above.
(b) Complete the above account by making entries you would consider necessary,
including adjustment, if any.