CA – IPC TEST
MATERIAL COSTING
MM: 34 Marks
Duration = 1 hour
Solution 1: Difference between Minimum lead time Maximum lead time = 4 days
Min. lead time = 4 days
Or, Max. lead time = Min. lead time + 4 days . . . . . . . . . . . . . . . . . . . . . (i)
Average lead time is given as 6 days i.e.
Max. lead time + Min. lead time = 6 days . . . . . . . . . . . . . . . . . . . . . (ii)
2
Putting the value of (i) in (ii),
Min. lead time + 4 days + Min. lead time
= 6 days
2
Or, Min. lead time + 4 days + Min. lead time
= 12 days
Or, 2 Min. lead time
= 8 days
Or, Minimum lead time = 8 days
= 4 days
2
Putting this Minimum lead time value in (i), we get
Maximum lead time = 4 days + 4 days = 8 days
(i)
Maximum consumption per day:
Re-order level = Max. Re-order period × Maximum Consumption per day
1,60,000 units = 8 days × Maximum Consumption per day
Or, Maximum Consumption per day = 1,60,000 units = 20,000 units
8 days
(ii)
Minimum Consumption per day:
Maximum Stock Level = Re-order level + Re-order Quantity – (Min. lead time × Min. Consumption per day)
Or, 1,90,000 units = 1,60,000 units + 90,000 units – (4 days × Min. Consumption per day)
Or, 4 days × Min. Consumption per day = 2,50,000 units – 1,90,000 units
Or, Minimum Consumption per day = 60,000 units = 15,000 units
4 days
Solution 2:
Supplier
Variable Cost
Fixed Cost
I
8
II
7.5
3,000
III
6.9
6,000
Cut off the order quantity between 1st and 2nd supplier = Fixed Cost per order/Per unit price difference
= 3,000 / (8 – 7.50) = 6,000 units
Cut off the order quantity between 2nd and 3rd supplier = (6,000 – 3,000) / (7.50 – 6.90) = 5,000 units
Cut off the order quantity between 1st and 3rd supplier = 6,000 / (8 – 6.90) = 5,454.54 units
From above calculations the conclusions are:
(a) For order quantity below 5,454.54 units, the first supplier is economical.
(b) For order quantity of 5,454.54 units, both 1st and 3rd suppliers are equally good.
(c) For order quantity above 5,454.54 units 3rd supplier is better.
Solution 3: Store Ledger of Aditya Ltd. (Weighted Average Method)
Date
Receipts
Issues
Balance of Stock
Feb Qty (Kg.) Rate (`) Amount (`) Qty (Kg.) Rate (`) Amount (`) Qty (Kg.) Rate (`) Amount (`)
1
1,200
475.00
5,70,000
5
975
475.00
4,63,125
225
475.00
1,06,875
6
3,500
460.00
16,10,000
3,725
460.91
17,16,875
7
2,400
460.91
11,06,175
1,325
460.91
6,10,700
9
475
460.91
2,18,932
1,800
460.91
8,29,632
15
1,800
480.00
8,64,000
3,600
470.45
16,93,632
17
140
480.00
67,200
3,460
470.07
16,26,432
20
1,900
470.07
8,93,133
1,560
470.06
7,33,299
28
180*
470.06
84,611
1,380
470.06
6,48,688
*180 kgs. Is abnormal loss, hence it will be transferred to Costing Profit & Loss A/c
Solution 4: Computation of Total Expected stock out cost
Safety stock
level (units)
Stock out
(units)
(1)
(2)
500
400
0
100
Stock out cost @
` 40 per unit (`)
(3)
0
4,000
Probability of
stock out
(4)
0
0.01
250
250
150
10,000
6,000
0.01
0.02
100
400
300
150
16,000
12,000
6,000
0.01
0.02
0.03
50
450
350
200
50
18,000
14,000
8,000
2,000
0.01
0.02
0.03
0.04
0
500
400
250
100
50
20,000
16,000
10,000
4,000
2,000
0.01
0.02
0.03
0.04
0.10
(A)
Expected stock
out at this level
(`) [(3) x (4)]
(5)
0
40
40
100
120
220
160
240
180
580
180
280
240
80
780
200
320
300
160
200
1,180
(B)
Expected Annual
Carrying Cost of
SSL
10,000
10,000
8,000
8,040
5,000
5,220
2,000
2,580
1,000
1,780
0
The optimum safety stock is zero unit.
Solution 5: (i) Calculation of Economic Order Quantity:
EOQ = 2 x A x O = 2 x (60,000 packs x 12 months) x `240 = 3,893.3 packs or 3,893 packs
C
`228 x 10%
(ii) Number of orders per year
Annual requirements = 7,20,000 packs = 184.9 or 185 orders a year
EOQ
3,893 packs
(iii) Ordering and storage costs: 2 x A x O x C = 2 x 7,20,000 x `240 x `22.8 = `88,768
(iv) Timing of next order:
Average delivery period = Maximum lead time + Minimum lead time
2
= 6 Days + 4 Days = 5 Days
2
Average usage per day = Annual Requirement
360 Days
= 7,20,000 Packs = 2,000 Packs
360 Days
Days requirement covered by Present inventory =
Present Inventory
Average usage per unit
= 10,000 Packs = 5 Days
2000 Packs
Timing for the next order = Average Delivery Period – Days Requirement covered by Present Inventory
= 5 Days – 5 Days = 0 Days
This means that next order for the replenishment of supplies has to be placed immediately.
.
(A) + (B)
Total cost
1,180