Material costing:
EOQ : Economic Order Quantity
Annual Usage 18000 units Cost of placing an order Tk 12
Carrying cost as a percent of inventory 20% . Cost per unit of material Tk 1.5 .
Required :
Determine the Economic Order Quantity mat Mathematical way:
EOQ= Root over 2*AD*OC/CC Root over 2*18000*12/20% of 1.5 =1200 units
Here
AD = Annual demand Oc= Ordering cost Cc= Carrying cost Tabular Form:
No of order 1 2 3 5 6 9 15 18
Order size 18000 9000 6000 3600 3000 2000 1200 1000
Average inventory=
Order size / 2
9000 4500 3000 1800 1500 1000 600 500
Average inventory value= Avg inv* Cost per unit
13500 6750 4500 2700 2250 1500 900 750
Carrying cost =20 % of Avg inv value
2700 1350 900 540 450 300 180 150
Ordering cost=No of order* cost per order
12 24 36 60 72 108 180 216
Total cost 2712 1374 936 600 522 408 360 366
Here 1200 order size is our EOQ level where carrying and ordering costs are same and total cost is lowest.
Ques: Basu & Das : Problem 8
Annual Usage 800 units Cost of placing an order Tk100
Carrying cost as a percent of inventory 10% . Cost per unit of material Tk 30 .
Rent, Insurance, Taxes etc per unit per annum Tk 1.
Required :
Determine the Economic Order Quantity mathematically and in tabular form Ans:
Mathematical way:
EOQ= Root over 2*AD*OC/CC
Root over 2*800*100/ 10 % of 30 +1 =200 units
Here
AD = Annual demand Oc= Ordering cost Cc= Carrying cost Tabular Form:
No of order 1 2 4 8 10 16
Order size 800 400 200 100 80 50
Average
inventory= Order size /2
400 200 100 50 40 25
Average inventory value= Avg inv*
Cost per unit
400*30=12000 6000 3000 1500 1200 750
Carrying cost =10
% of Avg inv value+ rent ,tax, insurance cost Tk 1
12000*10%=
1200 400*1=400
=!600
600+200=
800
300+100=40 0
150+50
= 200
120+40
= 160
75+25
= 100
per unit per annum
Ordering cost=No of order* cost per order
100 200 400 800 1000 1600
Total cost 1700 1000 800 1000 1160 1700
Here 200 order size is our EOQ level where carrying and ordering costs are same and total cost is lowest.
Matz Usry:284 ( Discount related problem)
Assume that annual usage of an inventory item is 3600 units costing Tk 1 each with no discount available .The carrying cost is 20 percent of the average inventory investment and the cost to place an order is Tk 10
The quantity discounts are
Order size Quantity discounts
3600 8%
1800 6%
1200 5%
900 5%
720 4.5%
600 4%
450 4%
Calculate EOQ mathematically and in tabular form
Mathematical way:
EOQ= Root over 2*AD*OC/CC Root over 2*3600*10/ 20% of 1 =600 units
Here
AD = Annual demand Oc= Ordering cost Cc= Carrying cost
Tabular Form:
List price/cost per unit
1 1 1 1 1 1 1
Amount of discount
.08 .06 .05 .05 .045 .04 .04
Discounted price per unit
.92 .94 .95 .95 .955 .96 .96
No of order 1 2 3 4 5 6 8
Order size 3600 1800 1200 900 720 600 450
Average inventory=
Order size /2
1800 900 600 450 360 300 225
Average inventory value= Avg inv*
discounted price per unit
1656 846 570 427.5 343.5 288 216
Carrying cost
=20 % of Avg inv value
331.2 169.2 144 85.5 68.7 57.6 43.2
Ordering cost=No of order* cost per order
10 20 30 40 50 60 80
Material Cost=
Annual demand*
discounted price per unit
3600*.9 2
=3312
3384 3420 3420 3438 3456 3456
Total cost 3653.2 3573.2 3594 3545.5 3556.7 3573.6 3579.2
Here 900 order size is our EOQ level where total cost is lowest.
1. Prepare a stores ledger under the FIFO /LIFO method of pricing the issues of
stores using the following information:
(4)
2008 Unit
Jan 1 Balance in hand @ Tk. 1.10 per unit 100
2 Received @ Tk. 1.20 per unit 200
10 Issued 150
14 Received @ Tk. 1.30 per unit 100
18 Issued 15
26 Received @ Tk. 1.20 per unit 100
30 Wastage 10
31 Issued 110
31 Shortage found 20
Solution:
FIFO
Date Receipt Issue Balance
Quantity Rate Amoun
t
Q R A Q R A
2008 Jan 1 2
10 14
18
26
30
200 1.2 240
100 1.3 130
100 1.2 120
100 1.1 110 50 1.2 60
15 1.2 18
10 1.2 12
100 1.1 110
100 1.1 110 200 1.2 240 150 1.2 180
150 1.2 180 100 1.3 130
135 1.2 162 100 1.3 130 135 1.2 162 100 1.3 130 100 1.2 120
125 1.2 150 100 1.3 130 100 1.2 120
31
31
110 1.2 132
15 1.2 18 5 1.3 6.5
15 1.2 18 100 1.3 130 100 1.2 120 95 1.3 123.5 100 1. 2 120 Ending inventory at the end of the month 195 units and cost was Tk 243.5
2.Prepare a sores ledger under the LIFO method of pricing the issues of stores using the following information: (4)
2008 Unit
Jan 1 Balance in hand @ Tk. 1.10 per unit 100
2 Received @ Tk. 1.20 per unit 200
10 Issued 150
14 Received @ Tk. 1.30 per unit 100
18 Issued 150
23 Returned from the issues on 10th January 20
26 Received @ Tk. 1.20 per unit 100
30 Wastage 10
Solution:
Date Receipt Issue Balance
2008 Jan 1 2 10
14
18
23
200 1.2 240
100 1.3 130
20 1.2 24
150 1.2 180
100 1.3 130 50 1.2 60
100 1.1 110 100 1.1 110 200 1.2 240 100 1.1 110 50 1.2 60 100 1.1 110 50 1.2 60 100 1.3 130 100 1.1 110
100 1.1 110
26
30
100 1.2 120
10 1.2 12
20 1.2 24 100 1.1 110 20 1.2 24 100 1.2 120
100 1.1 110 20 1.2 24 90 1.2 108
28.10.20
1. Prepare a stores ledger under the Simple average/Weighted average method of pricing the issues of stores using the following information:
(4)
2008 Unit
Jan 1 Balance in hand @ Tk. 1.10 per unit 100
2 Received @ Tk. 1.20 per unit 200
4 Received @ Tk. 1.3 per unit 100
10 Issued 150
14 Received @ Tk. 1.40 per unit 100
18 Issued 15
26 Received @ Tk. 1.50 per unit 100
31 Issued 110
Solution:
Weighted Average
Date Receipt Issue Balance
Quantit y
Rate Amoun
t
Q R A Q R A
2008 Jan 1 2
4
200 1.2 240
100 1.3 130
100 1.1 110
300 1.17 350(110+240)
400 1.2 480 (350+130)
10
14 18 26 31 100 1.4 140
100 1.5 150
150 1.2 180
15 1.26 18.9 110 1.31 144
250 1.2 300
350 1.26 440
335 1.26 422
435 1.31 572
325 1.31 426
Weighted average rate: Total cost/Total unit= 350/300= 1. Prepare a stores ledger under the Simple average/Weighted average method of pricing the issues of stores using the following information: (4) 2008 Unit Jan 1 Balance in hand @ Tk. 1.10 per unit 100 2 Received @ Tk. 1.20 per unit 200 4 Received @ Tk. 1.3 per unit 100 10 Issued 150 12 Issued 100
14 Received @ Tk. 1.40 per unit 100 18 Issued 15 26 Received @ Tk. 1.50 per unit 100
31 Issued 110
Simple Average:
Solution:
Simple Average
Date Receipt Issue Balance
Quantity Rate Amoun
t
Q R A Q R A
2008
Jan 1
2
4
10
12 14 18 26 31 100 1.1 110
200 1.2 240
100 1.3 130
100 1.4 140
100 1.5 150
150 1.2 180
1.1+1.2+1.3/3=1.2 100 (1.2+1.3/2)1.25 125 15 (1..2+1.3+1.4/3)1.3 19.5 110 1.35 148.5 (1.2+1.3+1.4+1.5/4=1.35) 100 110
300 350(110+240) 400 480 (350+130) 250 300
150 175
250 315
235 295.5 435 445.5 325 297
Purchase department of your company has received an offer of quantity discounts on its orders of materials as under:
Price per ton Tons ordered
Tk
1200 Less than 500
1170 500 and less than 1000 1165 1000 and less than 2000 1150 2000 and less than 3000 1130 3000 and above
The annual requirement for the material is 5000 tons. The Ordering cost per order is Tk 1200 and the stock holding cost is estimated at 20% of material cost per annum.
Requirements: [8]
i) To compute the most economical purchase level in tabular form considering discount ii) What will be the answer to the above question in mathematical form if there is no discount offered and the price per ton offered by supplier is Tk 1500
