CWA Inter Group-1
Test 1
Material and Cost Sheet
Cost Accounting
Time 2 hours
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Attempt all questions.
1. Tubes Ltd. are the manufacturers of picture tubes for T.V. The following are the details of their
operation during 1997:
Average monthly market demand 2,000 Tubes
Ordering cost
Rs.100 per order
Inventory carrying cost
20% per annum
Cost of tubes
Rs.500 per tube
Normal usage
100 tubes per week
Minimum usages
50 tubes per week
Maximum usage
200 tubes per week
Lead time to supply
6-8 weeks
Compute from the above:
(1) Economic Order Quantity. If the supplier is willing to supply quarterly 1,500 units at a discount
of 5%, is it worth accepting?
(2) Maximum level of stock
(3) Minimum level of stock
(4) Reorder level
2. What do you understand by ABC analysis of inventory control?
A Factory uses 4,000 varieties of inventory. In terms of inventory holding and inventory usage,
the following information is compiled:
No. of varieties of inventory
%
% value of inventory
% of inventory usage (in endholding (average)
product)
3,875
96.875
20
5
110
2.750
30
10
15
0.375
50
85
4,000 100.000
100
100
Classify the items of inventory as per ABC analysis with reasons.
3. G Ltd. produces a product which has a monthly demand of 4,000 units. The product requires a
component X which is purchased at Rs.20. for every finished product, one unit of component is required.
The ordering cost is Rs.120 per order and the holding cost is 10% p.a.
You are required to calculate:
(i) Economic order quantity.
(ii) If the minimum lot size to be supplied is 4,000 units, what is the extra cost, the company has to
incur?
(iii) What is the minimum carrying cost, the company has incur?
CWA Inter Group-1
Cost Accounting
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4. The Complete Gardener is deciding on the economic order quantity for two brands of lawn fertilizer:
Super Grow and Nature’s Own. The following information is collected.
Fertilizer
Super Grow Nature’s Own
Annual Demand
2,000 bags
1,280 bags
Relevant ordering cost per purchase order
Rs.1,200
Rs.1,400
Annual relevant carrying cost per bag
Rs.480
Rs.560
Required:
(i) Compute EOQ for Super Grow and Nature’s Own.
(ii) For the EOQ, what is the sum of the total annual relevant ordering costs and total annual
relevant carrying costs for Super Grow and Nature’s Own?
(iii) For the EOQ, Compute the number of deliveries per year for Super Grow and Nature’s Own.
4 A fire occurred in the factory premises on October 31, 2003. The accounting records have been
destroyed. Certain accounting records were kept in another building. They reveal the following for the
period September 1, 2003 to October 31, 2003:
(i) Direct materials purchased
(ii) Work in process inventory 1.9.2003
(iii) Direct materials inventory, 1.9.2003`
(iv) Finished goods inventory, 1.9.2003
(v) Indirect manufacturing costs
(vi) Sales revenues
(vii) Direct manufacturing labour
(viii)
Prime costs
(ix) Gross margin percentage based on revenues
(x) Cost of goods available for sale
Rs.2,50,000
Rs.40,000
Rs.20,000
Rs.37,750
40% of conversion cost
Rs.7,50,000
Rs.2,22,250
Rs.3,97,750
30%
Rs.5,55,775
The loss is fully covered by insurance company. The insurance company wants to know the historical
cost of the inventories as a basis for negotiating a settlement, although the settlement is actually to be
based on replacement cost, not historical cost.
Required:
(i) Finished goods inventory, 31.10.2003
(ii) Work-in-process inventory 31.10.2003
(iii) Direct materials inventory, 31.10.2003.
5.
A.
B.
C.
D.
Answer the following.S
What is Just in Time (JIT) purchase? What are the advantages of such purchases ?
Discuss the treatment of spoilage and defectives in cost accounting
Discuss ABC analysis as a technique of inventory control.
How are normal and abnormal loss of material arising during storage treated in Cost Accounts?