Accounting for Materials 41

2 . Ac c o u n t in g fo r Mat e rials
Pra c t ic a l Qu e s t io n s
Brief Questions Answers (Exam Oriented short problems for 2 marks)
Question No. 1 (A) Ans.: 6,000 units. Stock level
Calculate Re-ordering level from the following information:
Annual requirement...................................72,000 units
Safety stock.................................20 days consumption
Reorder period............................................10 days
Question No. 1 (B) Ans.: 8,880 units. Stock level
Calculate Re-ordering level from the following information:
Annual requirement...................................86,400 units
Safety stock.................................25 days consumption
Reorder period............................................12 days
Question No. 2 (A) Ans.: i) 9,100 units and (ii) 7,800 kg Stock level
Calculate Re-ordering level from the following information:
i) Consumption per day = 800 units to 1,300 units
Re-ordering period = 5 to 7 days

ii) Consumption per year (working 360 days) = 1,26,000 kg

Safety stock/Minimum stock level = 5,000 kg
Lead time = 5 to 11 days
Question No. 2 (B) Ans.: a) 4,500 tones and (b) 23,400 tones Stock level
Calculate Re-ordering level from the following information:
a)Consumption per week : 700 to 900 tones
Re-ordering period : 3 to 5 weeks
b) Consumption per year (working 50 weeks in a year): 90,000 tones
Safety stock : 14,400 tones
Lead time : 3 to 7 weeks
42 Accounting for materials

Question No. 3 (A) Ans.: 19,200 kg Stock Level

Consider the following information:
Re-order quantity.............................................8,000 kg.
Re-ordering period....................................4 to 8 weeks
Consumption per week....................1,200 to 2,000 kg.
Required: Maximum stock level
Question No. 3 (B) Ans.: 1,500 units Stock Level
Consider the following information:
Re-order quantity.........................................2,500 units
Re-ordering period.......................................3 to 7 days
Consumption per day.........................300 to 500 units
Required: Minimum stock level
Question No. 4 (A) Ans.: 800 kg Stock level
Arcadia Publishing House Pvt. Ltd. provides you the following information:
Delivery period.............................................2 to 8 days
Minimum stock level........................................8,000 kg
Re-ordering level.............................................12,000 kg
Required: Normal consumption per day
Question No. 4 (B) Ans.: 800 units Stock level
A Company provides you the following information:
Delivery period..........................................2 to 6 weeks
Minimum stock level...................................4,400 units
Maximum consumption per week.............1,500 units
Required: Minimum consumption per week
Question No. 5 (A) Ans.: (i) 23,000 units (ii) 80,000 units Stock Level
Consider the following information:
Economic order quantity...........................16,000 units
Re-ordering period.......................................5 to 7 days
Usage per day.................................3,000 to 5,000 units
Maximum emergency period..........................20 days
Minimum stock level.................................15,000 units
Required: (i) Average stock level (ii) Danger stock level
Question No. 5 (B) Ans.: a) 7,000 kg; (b) 9,600 kg Stock Level
Consider the following information:
Re-ordering quantity........................................9,000 kg
Re-ordering period....................................4 to 6 weeks
Usage per day............................................700 to 900 kg
Maximum emergency period........................12 weeks
Minimum stock level........................................2,500 kg
Required: (a) Average stock level (b) Danger stock level
 Accounting for Materials 43

Question No. 6 (A) Ans.: (i ) 3,000 units; ii) 60 times EOQ

The Detail of Materials purchase by a Manufacturing Company are as under:
Average Consumption per day 720 units Working days in year 250 days
Re-purchasing Cost per purchase Rs.100
Carrying cost per unit per Annum:
Return on investment (interest) Re.1.70 Storage charge Re.2.30
Required: Economic order quantity
Question No. 6 (B) Ans.: (a) 2,000 kg; (b) Rs.6,000 EOQ
The Detail for material purchase of a manufacturing company are as under:
Normal Consumption per week 1,600 kg Working weeks in year 50 weeks
Re-purchasing Cost per purchase Rs.75
Carrying cost per kg per Annum:
Insurance of material Re.1.80 Return on investment Re.1.20
Required: (a) Economic order quantity (b) Total cost at EOQ
Question No. 7 (A) Ans.: i) 6,000 kg; (ii) Rs.12,000 EOQ
You are provided the following information of a factory:
Normal consumption per day 600 kg. Purchase price per kg Rs.10
Working time in a year 300 days. Procurement cost per procurement
Rs.200.
Holding cost per kg per year of unit value:
Insurance of material 15%
Return on investment (interest) 5%
Required: (i) Economic order quantity (ii) Total cost at EOQ.
Question No. 7 (B) Ans.: a) Rs.20,000 EOQ
An industry provides you the following data:
You are provided the following information of a factory:
Normal consumption per day........................400 bags
Purchase price per bag..........................................Rs.20
Working time in a year....................................250 days
Re-purchasing cost per order............................Rs.500.
Carrying cost per bag per year of unit value:
Return on investment (interest)...............................7%
Storage cost................................................................13%
Required: Total cost at EOQ.
Question No. 8 (A) Ans.: Rs.2 EOQ
You are provided the following information of a factory:
44 Accounting for materials

Economic Order Quantity..............................6,000 kg

Procurement cost per procurement...................Rs.200
Annual requirement....................................1,80,000 kg
Required: Carrying cost per kg.
Question No. 8 (B) Ans.: Rs.75 EOQ
The Detail for material purchase of a manufacturing company are as under:
Economic Order Quantity...........................2,000 units
Carrying cost per unit..............................................Rs.3
Annual requirement...................................80,000 units
Required: Cost per order
Descriptive Questions Answers (Exam Oriented medium problem for 5 to 10 marks)
Question No. 1 (A) Ans.: (i) 16,000kg; (ii) 19,200 kg; (iii) 6,400 kg Stock Level
Consider the following information:
Re-order quantity...............................................8,000kg
Re-ordering period....................................4 to 8 weeks
Consumption per week......................1,200 to 2,000kg
Required: (i) Re-ordering level (ii) Maximum stock level (iii) Minimum stock level
Question No. 1 (B) Ans.: (a) 3,500 units; (b) 5,100 units; (c) 1,500 units Stock Level
Consider the following information:
Re-order quantity.........................................2,500 units
Re-ordering period.......................................3 to 7 days
Consumption per day.........................300 to 500 units
Required: (a) Re-ordering level (b) Maximum stock level (c) Minimum stock level
Question No. 2 (A) Ans.: i) 35,000; (ii) 32,000; (iii) 11,000; (iv) 17,000 or, 21,500; (v) 48,000 units Stock Level
Consider the following information:
Re-ordering quantity..................................12,000 units
Re-ordering period.......................................5 to 7 days
Usage per day.................................3,000 to 5,000 units
Maximum emergency period..........................12 days
Required: (i) Re-ordering level (ii) Maximum stock level (iii) Minimum stock level
(iv) Average stock level by applying both formula (v) Danger stock level
Question No. 2 (B) Ans.: a) 5400 tones; (b) 6000 tones; (c) 1650 tones; (d) 3150 or, 3,825 tones; (e) 7500 tones Stock Level
Consider the following information:
Re-ordering quantity...................................3,000 tones
Re-ordering period....................................4 to 6 weeks
Consumption per week......................600 to 900 tones
Maximum emergency period.......................10 weeks
Required: (a) Re-ordering level (b) Maximum stock level (c) Minimum stock level
(d) Average stock level by applying both formula
(e) Danger stock level
Question No. 3 (A) Ans.: i) 1,500 kg; (ii) 800 kg; (iii) 100 kg Stock level
 Accounting for Materials 45
Arcadia Publishing House Pvt. Ltd. provides you the following information:
Delivery period.............................................2 to 8 days
Minimum stock level........................................8,000 kg
Re-ordering level.............................................12,000 kg
Required: i) Maximum consumption per day
ii) Normal consumption per day
iii) Minimum consumption per day
Question No. 3 (B) Ans.: a) 1,500 units; (b) 1,150 units; (c) 800 units Stock level
A Company provides you the following information:
Delivery period..........................................2 to 6 weeks
Minimum stock level....................................................... 4,400 units
Re-ordering level..........................................9,000 units
Required: (a) Maximum consumption per day (b) Normal consumption per week (c)
Minimum consumption per week
Question No. 4 (A) Ans.: (i) 17,500 units; (ii) 16,000 units and (iii) 7,000 units. Stock level
Following information are available to you:
Maximum consumption per week.............2,500 units
Minimum consumption per week.............1,000 units
Normal consumption per week.................1,500 units
Re-ordering quantity....................................5,500 units
Re-ordering period...........................................7 weeks.
Required: (i) Re-ordering level (ii) Maximum stock level (iii) Minimum stock level
Question No. 4 (B) Ans.: (a) 13,500 kg; (b) 16,000 kg; (c) 2,700 kg Stock level
Following information are available to you:
Maximum consumption per day....................1,500 kg
Minimum consumption per day........................500 kg
Normal consumption per day.........................1,200 kg
Re-ordering quantity........................................7,000 kg
Re-ordering period................................................9 day
Required: (a) Re-ordering level (b) Maximum stock level (c) Minimum stock level
Question No. 5 (A) Ans.: (i) 3,500 kg; (ii) 4,800 kg; (iii) 1,300 kg; (iv) 2,550 kg or, 3,050 kg. Stock level
Following are the information given to you:
Lead time (delivery period)........................3 to 5 days
Re-ordering Quantity.......................................2,500 kg
Weekly consumption........................2,800 to 4,900 kg.
Required: (i) Re-ordering level (ii) Maximum inventory level (iii) Minimum
inventory level (iv) Average inventory level
Question No. 5 (B) Ans.: (a) 2,400 units; (b) 3,400 units; (c) 775 units; (d) 1,775 units or, 2,087.5 units Stock level
You are provided the following information of a manufacturing company:
Lead time (delivery period)........................4 to 6 days
Re-ordering quantity....................................2,000 units
Weekly consumption.....................1,750 to 2,800 units
46 Accounting for materials

Required: (a) Re-ordering level (b) Maximum Inventory level (c) Minimum
Inventory level (d) Average Inventory level
Question No. 6 (A) Ans.: a) 3,600 and 2,400; (b) 7,600 and 5,000; (c) 1,600 and 1,200; (d) 4,000 and 2,700 kg. Stock Level
Two materials P and Q of a manufacturing Company are provided to you:
Minimum consumption..........................................200 kg per day
Maximum consumption.........................................600 kg per day
Delivery period: P.....................................................4 to 6 days
Q.....................................................2 to 4 days
Re-ordering quantity:.....................................................................P 4,800 kg
Q.........................................................3,000 kg
Required: (a) Re-ordering level (b) Maximum stock level (c) Minimum stock level
(d) Average stock level
Question No. 6 (B) Ans.: a) 6000, 8100 units; (b) 7000, 10000 units; (c) 2800, 3900 units; (d) 3900, 5600 units Stock Level
Two materials X and Y of a manufacturing company are provided to you:
Consumption per day : X– 400 to 1,200 units
: Y– 300 to 900 units
Delivery period: X : 3 to 5 days
Y : 5 to 9 days
Re-ordering quantity: X : 2,200 units
Y : 3,400 units
Required: a) Re-ordering level (b) Maximum stock level
c) Minimum stock level (d) Average stock level
Question No. 7 (A) Ans.: i) 20,000 kg.; (ii) 24,200 kg.; (iii) 8,800 kg. and (iv) 13,300 kg. or 16,500 kg. Stock Level
A Company provides you the following information:
a) Weekly consumption (working 5 days)..................14,000 kg
b) Normal re-ordering period.............................................4 days
c) Economic order quantity/Re-ordering quantity......9,000 kg
d) Plus and Minus deviation per week..........................6,000 kg
e) Plus and Minus deviation................................................1 day
f) Maximum emergency period.......................................10 days
Required: i) Re-ordering level (ii) Maximum stock level
iii) Minimum level (iv) Average stock level
Question No. 7 (B) Ans.: a) 56,000; (b) 65,000; (c) 31,000; (d) 38,500 or 48,000 units. Stock Level
The following are the information of a trading company:
Daily consumption.......................................5,000 units
Plus and Minus deviation per day.............2,000 units
Re-ordering quantity..................................15,000 units
Normal Re-ordering period................................5 days
Plus and minus deviation...................................3 days
Required: a) Re-ordering level (b) Maximum stock level
 Accounting for Materials 47
c) What should be the stock level immediately before the order is
received? (i.e. safety stock) (d) Average stock level
Question No. 8 (A) Ans.: i) 8,000 units; (ii) 9,400 units; (iii) 7,900 units Stock Level
The normal consumption of material of an industry for 250 working days in a year is
1,50,000 units and minimum consumption per day is 400 units.
The purchase period normally ranges from 6 days to 10 days.
The level of safety stock is 3,200 units and maximum stock level is 15,000 units
Required: (i) Re-order level (ii) EOQ (iii) Average stock level
Question No. 8 (B) Ans.: a) 6,300 pieces; (b) 3,700 pieces; (c) 4,650 pieces Stock level
The normal consumption of material of an industry for 300 working days in a year is
2,10,000 pieces.
Minimum consumptions per day.................................500 pieces
Purchasing period normally range from....................3 to 7 days
Maximum stock level.....................................................8,500 units
Safety stock/ minimum stock level..............................2,800 units
Required: (a) Re-ordering level
(b) Re-ordering quantity (c) Average stock level
Economic order quantity
Question No. 9 (A) Ans.: (i) 3,000 units; (ii) 60 times (iii) Rs.12,000
The Detail of Materials purchase by a Manufacturing Company are as under:
Average Consumption per day.....................720 units
Working days in year......................................250 days
Re-purchasing Cost per purchase......................Rs.100
Carrying cost per unit per Annum:
Insurance..............................................................Re.0.75
Return on investment (interest)........................Re.0.25
Storage cost..........................................................Re.0.50
Rent of warehouse..............................................Re.1.80
Store Staffing charge...........................................Re.0.70
Required: (i) Economic order quantity (ii) Optimum number of order
(iii) Total cost at Economic Order Quantity
Question No. 9 (B) Ans.: (a) 2,000 kg; (b) 40 times (c) Rs.6,000
The Detail for material purchase of a manufacturing company are as under:
Normal Consumption per week.....................1,600 kg
Working weeks in year...................................50 weeks
Re-purchasing Cost per purchase........................Rs.75
Carrying cost per unit per Annum:
Insurance of material..........................................Re.0.45
Rent of warehouse..............................................Re.0.60
Store Staffing charge...........................................Re.0.75
Storage cost..........................................................Re.0.30
Return on investment.........................................Re.0.90
Required: (a) Economic order quantity (b) Number of order (c) Total cost at EOQ
48 Accounting for materials

Question No. 10 (A) Ans.: i) 1,80,000 kg; (ii) 6,000 kg; (iii) Rs.12,000
You are provided the following information of a factory:
Normal consumption per day.........................600 kgs.
Purchase price per kg............................................Rs.10
Working time in a year...................................300 days.
Procurement cost per procurement..................Rs.200.
Holding cost per kg per year of unit value:
Insurance of material...............................................10%
Return on investment (interest)...............................5%
Storage cost..................................................................5%
Required: (i) Annual requirement (ii) Economic order quantity (iii) Total cost at EOQ
Question No. 10 (B) Ans.: a) 1,00,000 bags; (b) 5,000 bags; c) Rs.20,000
An industry provides you the following data:
You are provided the following information of a factory:
Normal consumption per day........................400 bags
Purchase price per bag..........................................Rs.20
Working time in a year....................................250 days
Re-purchasing cost per order............................Rs.500.
Carrying cost per bag per year of unit value:
Insurance of material.................................................8%
Return on investment (interest)...............................7%
Storage cost..................................................................5%
Required: (a) Annual requirement (b) Economic order quantity (c) Total cost at
EOQ.
Question No. 11 (A) Ans.: i) 6,000 kg (ii) 500 kg (iii) 7,500kg (iv) 12,500 kg (v) 30 times (vi) 12 days (vii) Rs.18,000
Modern Industries sells high quality product. It has yearly demand of 1,80,000 kgs,
purchase price per kg Rs.30. Possession cost per kg per year @10% and procurement
activities to be under taken required expenses of Rs.300 (i.e. Cost of placing an order with
its supplier). The normal lead time for placing an order is 10 days. It keeps 15 days supply
on hand as safety stock. (Assume 360 days in a year)
Required: i) Economic order quantity ii) Normal consumption per day
iii) Safety stock iv) Re-ordering level
v) Optimum number of orders vi) Length of inventory cycle
vii) Total cost at EOQ
Question No. 11 (B) Ans.: a) 2000 units (b) 1600 units (c) 8000 units (d) 12800 units (e) 40 times (f) 1.25 weeks (g) Rs.8000
A Company has annual demand of 80,000 units, purchase price per unit Rs.40
possession cost per unit per year @10% and procurement activities to be under taken
required expenses of Rs.100 per order. The lead time for placing an order is 2 to 4
weeks. It keeps 5 weeks supply on hand as safety stock. Working time for the year 50
weeks.
Required: a) Economic order quantity b) Normal consumption per week
c) Safety stock d) Re-ordering level
e) Optimum number of orders f) Length of inventory cycle
 Accounting for Materials 49
g) Total variable cost at EOQ

Question No. 12 (A) Ans.: i) 1,700 units; (ii) 2.5 times (iii) 12 days
The following information provided to you:
Annual sales in the next year...................51,000 units.
Procurement cost per order...............................Rs.170.
Selling price per unit................................................Rs.5
Monthly carrying cost per unit.........50% of unit cost
Required: i) Monthly optimum quantity
ii) Monthly optimum number of orders
iii) Length of inventory cycle assume 30 days in a month

Question No. 12 (B) Ans.: a) 6,000 units; (b) 4 times; (c) 90 days
From the following information:
Monthly requirement...................................2,000 units
Selling price per unit is............................................Rs.3
Ordering cost per order......................................Rs.300.
Carrying cost per unit per year is.........................40%.
Required: a) Annual optimum quantity b) Yearly optimum number of orders
c) Length of inventory cycle assume 360 days in a year
Question No. 13 (A) Ans.: a) Rs.1.5; (b) 5 times (c) Rs.3,000; (d) 10 weeks
Goodwill Company limited supplied you the following information.
Economic order quantity............................2,000 units.
Annual requirement..................................10,000 units.
Ordering cost per order......................................Rs.300.
Required: i) Carrying cost per unit per year. ii) Number of orders.
iii) Total variable cost at economic order quantity (EOQ)
iv) Length of inventory cycle if 50 weeks in a year.
Question No. 13 (B) Ans.: i) Rs.20; (ii) Rs.1,000
From the following information:
Yearly demand..................................................5,000 kg
Yearly carrying cost per kg.....................................Rs.5
Economic order quantity....................................200 kg
Required: a) Ordering cost per order (O). (b) Total cost at EOQ
Question No. 14 (A) Ans.: a) 3000 units; (b) Rs.3,600 and Rs.71,100; (c) 9 times (d) 20 days; (e) 2,100 units (f) 3,300 units
Following information was given to you:
Estimated half yearly demand.................................................27,000 units
50 Accounting for materials

Purchase price per unit........................................................................Rs.2.5

Cost to process a purchase order......................................................Rs.200
Holding cost per half year working (180 days)..........48% of unit value
Safety stock.................................................................................70% of EOQ
Daily usage.......................................................................................150 units
Lead-time..............................................................................................8 days
Required: a) Economic order quantity b) total cost at EOQ with & without
inventory value
c) Optimum no. of orders d) Average period between the optimum
orders
e) Safety stock f) Re-ordering level
Question No. 14 (B) Ans.: i) 1,800 kg & Rs.324 (ii) 5 times (iii) 72 days (iv) 920 kg
Following information are given to you:
Half-yearly requirement (working 180 days) ............................4,500 kg
Purchase price per kg..............................................................................Rs.2
Cost to process a purchased order................................................Rs.32.40
Holding cost per year....................................................... 9% of unit value
Safety stock/ Minimum stock level.......................................40% of EOQ
Daily uses (Normal consumption per day)......................................25 kg
Normal lead-time...............................................................................8 days
Required: i) Annual EOQ and Total cost at EOQ ii) Annual No. of orders
iii) Length of inventory cycle iv) Re-ordering level
Question No. 15 (A) Ans.: EOQ 1,000 units; Total cost Rs.200 and No. of order 5 times
Annual requirement of raw materials as reported were 5,000 kg. Procurement activity
to be undertaken required expense of Rs.20. Annual possession cost of raw materials
will be Rs.0.2 per unit. Suggested by applying trial and error method (Tabulation
method)
Required: Optimum ordering quantity, Minimum total cost and No. of orders
Question No. 15 (B) Ans.: EOQ = 20,000 units; total cost Rs.12,000 and No. of order 3 times
Annual requirement of raw materials as reported were 60,000 units. Procurement
activity to be undertaken required expense of Rs.2,000. Annual possession cost of raw
materials will be Rs.0.6 per unit. Suggested by applying trial and error method
(Tabulation method).
Required: Optimum ordering quantity, Minimum total cost and No. of orders
Question No. 16 (A) Ans.: EOQ = 7,000 units; No. of order 21 times and total cost Rs.21,000
A Company is working for minimizing investment in inventory. The annual demand
will be 1,47,000 units in the next year, the cost estimated for placing and receiving a
delivery is Rs.500. The estimated storage cost including opportunity costs of the
investment associated with stock is Rs.3 per unit per year.
Required: Economic order quantity, No. of order and total cost at EOQ by using trial
and error method if the number of orders are 5 times; 10 times; 21 times; 25
times & 30 times.
 Accounting for Materials 51
Question No. 16 (B) Ans.: EOQ = 1,000 units
The following information are given:
Annual demand 26,000 units Cost per order Rs.30
Carrying cost per unit 20%per year Purchase price per unit Rs.7.8
Required:....Calculate economic order quantity if the order size 250 units, 500 units,
1,000 units, 2,000 units, 13,000 units and 26,000 units by using trail and
error method.
Question No. 17 (A) Ans.: Total costs at Existing policy Rs.13,000 and Total costs saved by EOQ Rs.1,000
A Company buys its annual requirement of 75,000 units in ten installments. Storage
costs Rs.2.4 per unit per year. Set up cost is Rs.400 per order. Find the total cost of
existing inventory policy. How much money can be saved by economic order
quantity?
Question No. 17 (B) Ans.: (a) Rs.15,000 (b) Rs.12,000 Total costs saved by EOQ Rs.3,000
A trading house has been procuring 3,00,000 units per year in 25 installments.
Purchase price per unit is Rs.8. The procurement cost is Rs.120 per order and the
estimated storage charge is 25 paisa per rupee unit value.
Required: a) Annual total cost of the existing purchasing policy
b) Annual total cost of optimum purchasing policy
c) Saving if optimum-purchasing policy is adopted.
Question No. 18 (A) Ans.: (i) EOQ 6,000 kg; TC at EOQ Rs.12,000; (ii) TC at discount offer Rs.11,400
The following constrains to inventory procurement have been collected for an item:
Annual requirement..................................................................3,00,000 kgs
Purchase price per kg..............................................................................Rs.8
Opportunity cost (Interest for capital locked up)...............................10%
Follow of cost for order........................................................................Rs.30
Pilferage charge of material holding......................................................8%
Inspection cost for order.......................................................................Rs.20
Material holding charge...........................................................................7%
Every order processing cost.................................................................Rs.70
Required: i) Economic order quantity and total cost at EOQ
ii) Total variable cost at order size of 15,000 kg after 0.25% quantity
discount.
Question No. 18 (B) Ans.: (a) EOQ 5,000 units and TC at EOQ Rs.16,000; (b) TC at discount offer Rs.4,000
The material purchasing details are as under:
Annual requirement....................................................................50,000 unit
Unit purchase price...............................................................................Rs.16
Storage charge............................................................................................8%
Inspection cost for order.....................................................................Rs.240
Interest on investment..............................................................................7%
Follow up cost for each order............................................................Rs.160
Obsolescence charged...............................................................................5%
Procurement cost for each order.......................................................Rs.400
Required: (a) Economic order quantity and total cost at EOQ
52 Accounting for materials

(b) Total variable cost at order size of 10,000 units after 2% discount.
Question No. 19 (A) Ans.: Discount offer is accepted because there net saving Rs.5,000
An industry currently is adopting optimum purchasing policy in meeting annual
inventory require of 1,00,000 bags. The purchasing price per bag is Rs.20, the cost
records project holding cost per bag per year 20% of original cost and re-purchase cost
of Rs.500 per order. The supplier is providing discount facilities of 0.5 percent if a
purchasing lot contains 10,000 bags.
Required: You are asked to choose the most economic purchase lot between the two
alternatives by showing your finding and calculation in a tabular form.
Question No. 19 (B) Ans.: (a) Rs.6000; (b) Rs.7750; (c) The discount facility is rejected because there is net loss of Rs.1,750
The expected sales of a factory will be 45,000 units @ Rs.3 per unit in the next year. The
set up cost of Rs.200 per order and inventory holding cost 200% per annum of unit
value.
Required: a) Total minimum cost at economic order quantity.
b) Total cost if the supplier allows 5% discount at an ordering size 9,000
units.
c) Should the discount facility be accepted?
Analytical Questions Answers
Question No. 20 (A) Ans.: (i) 20,000 kg; (ii) 23,000 kg; (iii) 12,000 kg; (iv) 16,500 or 17,500 kg. Stock level
Following information was available to you:
Maximum consumption during maximum re-ordering period...................20,000 kg
Minimum consumption during minimum re-ordering period......................6,000 kg
Normal consumption during normal re-ordering period...............................8,000 kg
Economic order quantity/Re-ordering quantity................................................9,000 kg
Required: i) Re-ordering point/Level ii) Maximum inventory.
iii) Minimum inventory iv) Average inventory.
Question No. 20 (B) Ans.: a) 15,000 units; (b) 18,000 units; (c) 5,000 units; (d) 9,000 units Stock Level
Following information was available to you:
Maximum consumption during maximum re-ordering period...............15,000 units
Minimum consumption during minimum re-ordering period..................5,000 units
Normal consumption during normal re-ordering period.........................10,000 units
Re-ordering quantity.........................................................................................8,000 units
Required: a) Re-ordering point/Level
b) Maximum inventory
c) Minimum inventory
d) Average inventory
Question No. 21 (A) Ans.: (i) 50,000 units, (ii) 2,500 units, (iii) Rs.10,10,000 EOQ
Following information are given in respect of a material:
Optimum numbers of orders based on economic order quantity is............20 times.
Purchased price per unit is........................................................................................Rs.20.
Possession cost per unit per year.............................................20% of inventory value.
 Accounting for Materials 53
Ordering cost per order is.......................................................................................Rs.250.
Required: (i) Annual requirement
(ii) Economic order quantity
(iii) Total cost at economic order quantity with material purchasing cost.
Question No. 21 (B) Ans.: (a) 18,000 units, (b) 1,000 units, (c) Rs.4,91,400 EOQ
The details of materials purchased by a firm are as under:
Optimum numbers of orders based on economic order quantity is.............18 times
Purchased price per unit is.........................................................................................Rs.27
Possession cost per unit per year..............................................20% of inventory value
Ordering cost per order is........................................................................................Rs.150
Required: (a) Annual requirement
(b) Economic order quantity
(c) Total cost at economic order quantity with material purchasing cost.
Question No. 22 (A) Ans.: (i) 4,000 unit; (ii) Rs.80,40,000; (iii) Rs.78,98,000; (iv) Discount offer is accepted EOQ
The following information is given to you:
Material purchase price per unit............................................................................Rs.100
Annual carrying cost.............................................................................10% of unit value
Procurement cost per procurement.....................................................................Rs.1,000
Total variable cost at economic order quantity (total ordering cost & carrying cost)
Rs.40,000
Required: (i) Economic order quantity
(ii) Total cost at EOQ with material purchase cost (Investment).
(iii) Total cost with material purchase cost if the supplier offers a discount
facility 2% at the ordering size 10,000 unit each time.
(iv) Should the discount facility the be accepted?
Question No. 22 (B) Ans.: (a) 10,000 unit; (b) Rs.1,62,40,000; (c) Rs.1,55,50,000; (d) Discount offer is accepted EOQ
The following information is given to you:
Annual total cost at economic order quantity.............Rs.2,40,000
Possession cost per unit per year..............................................Rs.24
Procurement activities cost.................................Rs.3,000 per order
Purchase price per unit..............................................................Rs.40
Required: (a) Economic order quantity
(b) Total cost at EOQ with material purchase cost (Investment).
(c) Total cost with material purchase cost if the supplier offers a discount
facility 6% in a purchasing lot contains 40,000 units.
(d) Should the discount facility the be accepted?

Some Extra Problems

Question No. 1 Ans.: (a) 30,000 kg. (b) 65,000 kg.
The following information are given to you:
Maximum stock level..................................1,25,000 kg
54 Accounting for materials

Re-order level...............................................1,05,000 kg
Economic order quantity...............................70,000 kg
Re-order period............................................5 to 7 days
Required: (a) Minimum stock level (b) Average stock level
Question No. 2 Ans.: (a) 25,000 units; (b) The offer is accepted it is less costly by Rs.1,59,600
Annual production capacity of a manufacturing company is 30,000 units. Standard
material consumption per unit is 10 kg. Purchase expenses per purchased is Rs.5,200.
Cost per kg is Rs.50. Holding cost per unit per year is Rs.4.992.
Required:(a) Optimum order size
(b) If the supplier of a 2% discount a lot contained 1 ,00,000 kg, Should the
offer accepted.
Question No. 3 Ans.: (a) Rs.35,000 (b) Rs.58,750
A factory purchased its annual material requirement 5,00,000 kg in 10 lots. The total
cost of existing purchase polity is Rs.1,25,000 excluding purchase price. The carrying
cost is 10% of inventory value.
Required: (a) Total cost of optimum purchase policy
(b) If supplier offer 1% discount for lot size 1,00,000 kg.