UNIT II

MATERIAL CONTROL:
Introduction:
A major objective of cost accounting is cost control. Every element of cost has to be effectively
controlled. An analysis of financial statement of a large number of private and public sector reorganization
reveals that about 55% of cost of production consists of material cost, on an average. It is essential,
therefore, for every organization to devise a suitable system of material control from the time of placement
of purchase requisition to the time of final consumption of the material.

DEFINE MATERIAL CONTROL AND STATE ITS OBJECTIVES:

Meaning and definition:
Material control is a system which ensures required quantity of material for the required quality at
the right time and place with minimum investment of capital. It may be defined as,” the regulation of the
function of an organization relating to the procurement, storage and usage of materials in such a way as to
maintain an even flow of production without excessive investment in material stock.

Need and objectives of material control:

The following are the objective of material control.

Ensuring supply of adequate quantity of materials:

Sufficient quantity of material should be made available for all the activities and departments in the
organization so that uninterrupted production can be carried on and work does not stop due to non
availability of materials.

Optimum investment in materials:

Keeping the amount invested in materials under control is central objective of material control.
Excessive investment and over stocking can be avoided by fixing maximum stock level for all major items
of materials.

Favourable terms of purchase:

The purchase price and other terms of purchase should be of maximum advantage to the firm. At
the same time, quality and specifications of the materials should be as per requirements.

Control of wastage:
Wastage of material during storage and handling on the production floor can be minimized.

Proper reporting to the management:

Management has to be informed frequently about stock of raw materials so that production is
planned. This is possible only if there is proper reporting system and updating of records by the store
keeper.

Prevention of misappropriation of materials:

Proper internal check of receipts, issues and consumption of raw materials helps in prevention of
misappropriation of materials by the employees.

STATE THE ESSENTIALS OF MATERIAL CONTROL.

Essentials of materials control:
A brief outline of various aspect of material control is discussed below:
Coordination:
Effective control of materials required for effective coordination among the departments involved
in purchasing – receiving and inspection, storage, production, sales and accounting departments so that
adequate materials are available for continuous production and sales.

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Centralized purchasing:
In order to economize the buying and to avoid reckless buying of raw materials the purchasing
function is to be centralized.

Receipt of materials:
Checking and inspection of material by receiving department ensure correct quantity and quality of
material as ordered by the organization.

Issue of materials:
A good method of issue of materials of various jobs, process and orders should be devised to ensure
delivery of right materials at the right time and right quantity and quality for smooth flow of production.

Levels of stocks:
Levels of stocks are to be maintained in the form of recorder level, Maximum level and minimum
level to avoid shortage and over stocking of materials.

Pricing of issues:
A suitable method of pricing is to be followed for correct valuation of material cost of jobs, orders,
process and valuation of closing stocks.

EXPLAIN THE ADVANTAGES OF MATERIAL CONTROL.

Advantages of materials control:
An effective material control system:
 Ensures availability of material for production.
 Reduces wastage of raw materials.
 Achieves economy of buying and storage cost.
 Reduces pilferage, theft, obsolescence and other material losses.
 Avoid excessive investment in stocks.
 Helps in maintaining perpetual inventory system to furnish information to management
regarding materials.
 Helps in ascertaining value of jobs, processes and orders.

WRITE A NOTE ON BIN CARD AND STORES LEDGER:

Bincard:
Each bin in which materials are kept is attached with bin card. It consists of receipts, issue and
balance of quantity in the bin. The entries are made after each receipt and issue and the balance is updated
after every entry. The bin cards are maintained by the store keeper. The store keeper is answerable for any
differences in the physical stock and balance shown in the bin card. The card is helpful for control of
stock. The card has details regarding minimum, maximum and reorder stock levels. As and when the
quantity reaches reorder level, the store keeper can initiate purchase requisition for acquiring material in
time.

Stores ledger card:

The stores ledger card is maintained in the costing department. It has similar details as contained in
the bin card regarding receipts, Issues and balance of materials quantity. In addition to quantity the stores
ledger card contain information in terms of values also. The pricing of materials issued is done in the store
ledger account.

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DISTINGUSH BETWEEN BIN CARD AND STORES LEDGER:
Bin card VS stores ledger:
The differences between a bin card and the stores ledger are mentioned below.

S. NO BIN CARD STORES LEDGER

1 It is maintained by stores It is maintained by costing department.
department.
2 Bin card provides quantities Stores ledger contains both quantity
received, issued and the balance in and values of receipts, issues and the
the bin. balances.
3 Entries are made before the Entries are made after the transactions
transaction take place. take place.
4 Each and every transaction is Transactions are summarized and
individually entered. entries are made periodically.

EXPLAIN VARIOUS STOCK LEVELS:

Levels of stock and EOQ:
The various levels of stock used in demand and supply method are explained in detail below:
Maximum stock level:
This is the minimum quantity of material to be maintained in stores through out the year. The
following factors are essential for fixing minimum stock level.
 Reorder level
 Normal consumption of material
 Time required to obtain material from the time of issuing purchase order to the time of physical
receipt of the materials
 Nature of material.

Maximum stock level:

It is the quantity above which the stock of any item should not be allowed to exceed. Fixation of
this quantity depends on several factors as given below:
 Rate of consumption required for production.
 Availability of storage space
 Cost of storage
 Availability of finance
 Extent of price fluctuations
 Reorder level and time required to obtain delivery of supplies
 Availability of quantity of raw material
 Economic ordering quantities
 Risk of obsolescence, evaporation and natural waste.
 Cost of insurance.

Danger level:
This is the stock level below the minimum level. When stocks reach this level action for immediate
purchase is necessary. Issues are controlled by stopping normal issues and issuing only on special
instructions.

Reorder level:
It is between maximum and minimum stock levels. Once the stock level reaches reorder level, the
store keeper initiates purchase requisition to obtain fresh stocks. Reorder level depends on economic
ordering quantity, lead time and rate of consumption of materials.

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Various methods are used for calculating the levels of stock. A simple model is adopted here to arrive at
the levels of stock and average level.

a Reorder level = MAXIMUM consumption X maximum reorder period

(Or) R.L= ( M.C. X M.R.P)
b. Minimum level = Reorder level minus (Normal consumption X Normal reorder period)
(or) min L = R.L. – (N.C X N.R.P)
c. Maximum stock level = Reorder level + Reorder quantity – (Minimum consumption X
Minimum reorder period)
(Or) max L = R.L + R.Q – (min C X Min R.P.)
d Average level = Minimum level + ½ of reorder quantity
Or ½ (Maximum level + Minimum level)
e Danger level = Average consumption X Maximum reorder period for emergency
purchase.

ECONOMIC REORDERING QUANTITY:

This is an important item of inventory control to be decided. In these days of inflationary trend, the
buying cost, carrying cost and ordering costs are very high. Firms should minimize these costs to control
and reduce material cost of production. Economic ordering quantity depends on many factors like cost of
purchasing and receiving, normal consumption, interest on capital, availability of storage accommodation,
ordering and carrying costs. Economic ordering quantity is the reorder quantity, which is the quantity to
be purchased each time an order is placed. The economic ordering quantity will be determined based on
the following formula.
EOQ = 2AB/CS
Where,
EOQ = economic ordering quantity
A = annual consumption or usage of material in units.
B = buying cost per order
C= cost per unit.
S = storage and carrying cost percentage per annum.
Sometimes consumption of material may not be given in units but only in value. In such cases, the
formula for EOQ is slightly altered.
EOQ = 2AB/S
This formula is applicable only when consumption of material is not given in units.

EXPLAIN ABC ANALYSIS:

ABC analysis:
It is ‘management by exception’ system for inventory control. In this “always better control
(ABC)” technique of inventory control, the materials are classified and controlled according to value of the
materials involved. It is also called proportional parts value analysis. This high value items are paid more
attention than low value items. The materials are classified under ‘A’, ‘B’ or ‘C’ designation on the basis
of their value and importance.
‘A’ category consists of a few items of high value. Category ‘B’ includes more items of medium
value and category ‘C’ includes all other materials of small value.
The general classification of items under ABC categories are as given below.

Category Percentage of total items Percentage of total material cost

A 5 TO 10 70 – 80
B 10 TO 20 10 – 20
C 70 TO 80 5-10

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 From the above classification, it is clear that ‘A’ items are of minimum quantity and of maximum
value out of total quantity and value of materials. They have to be controlled to the fullest possible extent
by all methods of inventory control from the time of purchase till they are consumed in production. ‘B’
and ‘C’ items are of major portion of total quantity of raw materials but having minimum capital
investment. Therefore, they are to be managed through less stringent controls.

EXPLAIN PERPETUAL INVENTORY SYSTEM:

The ICMA defines perpetual inventory as ‘a system of record maintained by the control department
which reflect the physical movement of stocks and their correct balance.
The records forming part of the system are;
 Bin card maintained by the store keeper in which all the physical quantities of receipts, issues and
balance are reordered.
 Stores ledger cards maintained by the costing department in which quantities as well as values of
receipts, issues and balance are recorded.

Merits of perpetual inventory system:

 It is not required to close the operations to verify stocks as it has been done throughout the year.
 Profit and loss account and balance sheet can be prepared at any time as stores ledger accounts
reveal stock quantity and value at any time of the year.
 Continuous stock taking censures reliable check on stocks.
 As stock verification is done systemically more reliable figures are revealed.

WHAT IS MEANT BY PERIODIC INVENTORY SYSTEM?

Periodic inventory system is a system of ascertaining the quantity and value of inventory on the
basis of an actual physical count or measure or weight of all the inventory items on hand at the end of
accounting period. It usually requires closing down of normal functioning for stock taking. The cost of
materials issued is calculated as a residual item.
Cost of materials issued = Opening inventory + purchase – closing inventory.

DISTINGUISH BETWEEN PERIODIC INVENTORY SYSTEM AND PERPETUAL INVENTORY

SYSTEM.
Periodic inventory system Perpetual inventory system
1. Inventory is ascertained on the basis of actual physical Inventory is ascertained on the basis of
count/ measure or weight records
2. Inventory is directly calculated by applying the method Inventory is calculated as residual figure
of valuation of inventories like FIFO, LIFO
3. It requires closing down of work for stock taking It does not require closing down of work for
stock taking
4. It is simple and inexpensive It is elaborate and expensive

EXPLAIN THE DIFFERENCES BETWEEN PERPETUAL INVENTORY SYSTEM AND

CONTINUOUS STOCK TAKING.
Continuous stock taking is a physical verification of a number of items daily or at frequent intervals.
It is done throughout the year.
Perpetual inventory system Continuous system
1. It is a system of recording stores balances after It is a physical verification of a number of items daily or
every receipt and issue of materials at frequent intervals
2. Its emphasis is on recording book balances Its emphasis is on the physical verification of recorded
book balances with the actual physical balances.

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WRITE A NOTE ON BILL OF MATERIAL
Bill of materials:
It is a document listing all the materials required with quantities for a particular job, order or
process. The bill of material serves the purpose of material requisition. The bill of material is prepared for
a job of non standardized type so that estimate of all materials required for the job is made by the
production department before the job is started. This is helpful to estimate material cost of the job for
submitting tenders or quotations.

WHAT ARE THE TECHNIQUES OF INVENTORY CONTROL?

The various techniques of inventory control are as follows:
 ABC analysis
 Economic order quantity
 Stock levels, minimum level, maximum level, reorder levels,
 Inventory turnover ratio
 Proper purchase procedure
 Proper storage procedure
 Proper issue procedure
 Use of perpetual inventory records and continuous stock verification
 Establishment of a system of budgets

EXPLAIN VARIOUS METHODS OF PRICING MATERIALS:

Methods of pricing material issues:
There are various methods in use. They are broadly classified under the following categories.

First in first out method (FIFO):

Different lots of the same material received are noted in the order in which they have entered into
the stock. When an issue is made, the price of the earliest lot in the stock is charged to the receiving
department. This method resembles the ‘queue’ system because the material which entered the store first
goes out first.
Advantages of FIFO method:
 Prices are based on actual costs. No profit or loss on stocks results from using this method.
 Stock balances are of fair commercial value representing the latest market prices.
 This method is suitable in case of slow moving materials.
 It is appropriate in situations of falling prices to charge the jobs with higher prices purchased
earlier.
Disadvantages:
 Possibility of more clerical errors due to more number of calculations.
 The cost of similar jobs differ if the prices fluctuate
 In times of rising prices, the cost of jobs does not reflect current market prices. This inflates the
profit unnecessarily, resulting in higher taxes.

Lost in first out method (LIFO):

Under this method, the price of material last purchase and kept in stores is charged for the issues
first and then the preceding lots purchased are issued. This method is used to take advantages of rising
prices.
Advantages:
 This method is simple to operate when issues are not too many.
 Prices are based on actual cost. Therefore there is no possibility of profit or loss in stocks.
 Production cost reflects latest market prices.
 This method is suitable in case of rising prices because materials are issued at current market
prices. The jobs and production are charged at the latest prices. Thus profit on the jobs is not
unnecessarily inflated.

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Disadvantages:
 This method also involves tedious clerical work which may lead to clerical errors.
 Comparison of jobs becomes difficult as they use same raw materials but are charged with different
prices.
 During the period of falling prices the stocks are at high prices, which may necessitate writing off
stock values to show the stocks at their market values.

Simple average price method:

When the variance between purchase prices is very little, this method is the most suitable one.
Here the total of the prices of materials in the stock (from which the material to be prices could have been
drawn) is divided by the number of prices used to ascertain the ‘simple average price’. Irrespective of the
quantities, the average of the prices is found. One lot may be 5 kgs and another lot may be 5,000 kgs. But
the prices per kg of both lots are taken for average purpose.

Advantages:
 It is simple and easy to calculate the issue price.
 This method reduces the effect of fluctuation of prices by averaging the price.

Disadvantages:
 This method does not take into account the quantity purchased at each price. This may lead to
absurd results.
 As the actual price is not used, profit or loss on material will usually arise.
 The value of closing stocks under this method is absurd. When price fluctuates sharply, the closing
stock shows credit balance, that is negative figure.

Weighted average price method:

The weighted average price is calculated by dividing the value of stock in the stores by the quantity
in the stock from which materials are to be issued. As this method takes into account the relative weights,
it reduces the effect of fluctuation in prices.

Advantages:
 This method is suitable when the prices are varying very much from one purchase to another. As it
uses quantities for calculation of average prices, the fluctuations are evened out.
 The basis of calculate in the method is simple as the price is calculated by dividing the value of
materials by their quantity.
 A new price is calculated when new materials are purchased. All the subsequent issues are made at
the price calculated until next lot is received. Thus, the clerical work is simplified and reduced.
 The stock balance reflects fair prices which may be taken for financial statements.

Disadvantages:
 This method is more complicated than simple average price as it takes into account the total
quantity and value.
 Since actual price is not used, profit or loss may arise in material cost by using this method.
 Where receipts are numerous, calculations will be many and may result in errors.
 The price may have to be taken up to three or four decimal places to calculate the correct value of
large quantities. Otherwise, approximation may lead to difference in accounts.

Base stock methods:

The base stock method proceeds are on the basis of the assumption that minimum quantity of
inventory must be held at all times to use in case emergency arise. Such minimum quantity of inventory is
known as base stock method. It is valued at the cost at which it is acquired.

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Replacement price method:
Materials are issued at replacement prices as on the date of issue of materials. It is the price at
which similar materials can be replaced by fresh purchase from the market.

Standard price methods:

Standard price is a pre –determined price fixed for a particular period on the basis of all factors
affecting it. Materials are issued at standard price.

Inflated price method:

In case material suffers loss due to its inherent nature the issue price of the material is inflated to
cover up the losses.

Re-use price method:

When processed material is put to some other use then for the purpose it is meant, then such
materials are priced at a rate quite different from the price paid for them originally. There is no final
procedure for valuing use of material.

WRITE A SHORT NOTE ON PURCHASE CONTROL

Efficient purchase of raw material is vital for every organization. Purchasing includes procuring of
raw materials, stationary, machines, equipments, supplies for business. It is a specialized activity entrusted
to a separate department. Purchase of all these items should be controlled so that cost of production and
profit can be efficiently controlled.

EXPLAIN THE PURCHASE PROCEDURE:

Depending up on the size and nature of the operations the purchase procedure may differ from
organization to organization. However, the main steps involved in purchasing procedure are as follows:
1. Receipt of purchase requisition:
Purchase requisition is a form used to make a formal request to the purchase department to purchase
the materials specified therein.
2. Selection of supplier:
Selection of supplier involves the following steps:
1. Inviting tenders and quotations
2. Tabulation of details of tenders received
3. Selecting the appropriate supplier.
3. Preparation, placement and follow up of purchase order:
Purchase order is a written document prepared by the purchase department which authorizes the
supplier to supply the specified quantity of materials of specified quality at specified price on terms
specified therein.
4. Receipt of materials:
The functions of receiving department are:
 It takes the delivery of packages sent by supplier along with advice of dispatch
 It gets the packages opened
 It checks the quantity received with quantity dispatched as per supplier’s advice.
 It prepares 4 copies of goods received note and sends one copy to purchase department
and retaining the last copy for office records.
5. Inspection of materials
6. Return of rejected goods
7. Checking and passing of purchase invoices for payment
8. Making payment to supplier

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SUBSTANTIATE VED ANALYSIS.
VED –Vital, Essential and Desirable- analysis is used primarily for control of spare parts. The spare parts
can be divided into 3 categories:
1. Vital
2. Essential or
3. Desirable keeping in view the criticality to production.
o Thus spares, the stock out of which even for a time is stop production for quite some time
and where the cost of stock out is very high are known as vital spares.
o The spares, the absence of which cannot tolerated for more than a few hours or a day and
cost of last production is high and which are essential for the production to continue are
known as Essential Spares.
o The desirable spares are those spares which are needed but their absence for even a week or
so will not lead to stoppage of production. Some spares are through negligible in monetary
value may be vital for the production to continue and require constant attention.

WHAT IS JUST – IN – TIME INVENTORY (JIT)?

Just in time purchasing means purchase when required only or purchase immediately before use.
CIMA London defines JIT purchasing as “Matching receipts of materials closely with usage so that raw
material inventory is reduced to near Zero level.”
Merits:
a. It requires minimum investment
b. It reduces clerical cost

DRAW SPECIMEN OF STORES LEDGER:

Name: Maximum level: Folio No:
Code no: Minimum level: Bin No:
Description: Reorder level: Location code:
Reorder quantity:
Date Particulars Receipts Issues Balance
Quantity Rate Amount Quantity Rate Amount Quantity Rate amount

DRAW SPECIMEN OF BILL OF MATERIALS:

Company Name
Bill of materials
Job No No
Department Date
Serial Description Material Quantity For cost office use Remarks
no Code no Rate Amount

Authorized by Priced by
Issued by stores ledger folio

DRAW SPECIMEN OF BIN CARD

Date Particulars Receipts Issues Balance
Quantity Amount Quantity Amount Quantity Amount

PROBLEMS:
1. The following quotation received from a supplier in respect of material J:
Lot Price: 10000 units @ Rs.25 per unit
20000 units @ Rs.20 per unit

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 Trade Discount @ 25%, Cash Discount @ 5% (if payment is made within a week). Freight Charge
Rs.1000 per order. Containers, one for every 1000 units, are charged at Rs 250 each. If they are returned
within 2 months, credit will be given at Rs 230 each.
Calculate the material cost for 20000 units, assuming the container will be returned.

2. The following quotation received from a supplier in respect of material L:

Lot Price: 10000 units @ Rs.50 per unit
20000 units @ Rs.60 per unit
Trade Discount @ 20%, Cash Discount @ 5% (if payment is made within 10 days). Freight Charge
Rs.2000 per order. Containers, one for every 1000 units, are charged at Rs.250 each. If they are returned
within 2 months, credit will be given at Rs.225 each.
Calculate the material cost for 20000 units, assuming the container will be returned.

3. A quotation received from a supplier in respect of material D as follows:

Lot Price: 10000 units @ Rs.50 per unit
50000 units @ Rs.45 per unit
100000 units @ Rs.40 per unit
Trade Discount @ 25%, Cash Discount @ 10% (if payment is made within 15 days). One
containers, is required for every 10000 units of the material and containers cost Rs.10000 each but Rs 9000
will credited if they are returned within 3 months.
Calculate the materials cost for 50000 units, assuming the containers are returned in due course.

4. In a truck load, the following materials were received:

Materials Quantity Rate (in Rupees)
X 6100 kgs 8.00 per kg.
Y 4120 kgs 6.00 per kg.
Sales tax was charged @ 5%
Railway Freight Rs.2100
Transport charges Rs.200
Loading & unloading Rs.100
The goods received note received from the storekeeper showed the following quantity.
X - 6000 kgs.
Y – 4000 kgs.
From the above figures you are required to calculate the purchase rate per kg of material X and Y.

Purchase Cost of Materials in Mixed Lots:

5. A lorry load of material of mixed goods was purchased for Rs.90000. There were sorted into the
following grades whose market rate is shown against each.
Grade A – 5000 units selling rate @ Rs.12.
Grade B – 3000 units selling rate @ Rs.10.
Grade C – 2000 units selling rate @ Rs.5.
Find the purchase rate per unit of each grade of the material assuming that all grade of
material yield same rate of profit.

6. A company purchased a wagon load of Kashmir Apples for Rs 40000 and they were sorted into four
different grades keeping the market in mind. The sale prices of the grades with relevant quantities were as
follows:
Grade I – 1000 Dozens @ Rs.20 per Dozen.
Grade II – 3000 Dozens @ Rs.20 per Dozen.
Grade III – 2000 Dozens @ Rs.20 per Dozen.
Grade IV – 1000 Dozens @ Rs.20 per Dozen.
Ascertain the purchase rate per Dozen of each grade of Apples, assuming the all grade of
Apple yield same rate of profit.

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Selection Of Supplier:
7. The following quotations were received from two suppliers for a material after inviting tenders:
Supplier I Rs.1.80 per unit
Supplier II Rs 1.60 per unit plus Rs.5000 Fixed charges per order.
1. Calculate the order quantity for which the purchase price will be same per unit.
2. Which supplier should be chosen for the following order quantities?
a. 20000 units
b. 30000 units

Inventory Turnover Ratio:

8. From the following calculate the inventory turnover ratio.
Stock as on 1st January, 1998 Rs.50000
Stock as on 31st January, 1998 Rs.70000
Purchase during the year Rs.500000

9. The following information is available from the books of a company for the year ended 31 st December,
1990.
Opening stock of Material A 14000
Purchase of Material A 230000
Closing Stock of Material A 10000
Calculate the material number turnover ratio of material A and also ascertain such turnover in terms of
days.

II. Economic Ordering Quantity (EOQ):

EOQ (in units)
10. If the price of the Material is Rs.15 per unit and the annual consumption is 4000 units, the interest and
store keeping charges are 20 percent of the value and the cost of placing of an order and receiving the
goods is Rs.60. How much material should be ordered at one time?

11. From the following data determine the EOQ

Annual requirements 120000 units
Purchase price (P.U) Rs.3
Ordering cost (P.O) Rs.50
Carrying Cost of Inventory (% cost) 10

EOQ (in Rupees):

12. You are required to calculate EOQ with the help of the details given below:
Material usage per month Rs.1600
Buying cost per order Rs.40
Storage & carrying cost @ 15% on Inventory cost.

13. Find out the economic ordering quantity from the following particulars:
Annual usage Rs.120000
Cost of placing and receiving one order Rs.60
Annual carrying cost 10 % of Inventory value.

EOQ and Ordering Schedule:

14. From the following particulars given below, calculate EOQ and the number of orders to placed per
year.
Annual consumption 10000 kgs
Buying cost per unit Rs.50
Cost of materials Rs.2 per kg
Carrying & storage cost @ 8% on average inventory.

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15. Find the EOQ when the annual consumption is 6000 kgs. Ordering cost is Rs.120 per order. Price per
kg is Rs.20 and carrying cost is 20%. Also ascertain the frequency of placing orders.

16. Purchase price per unit Rs.60

Purchase order cost Rs.240
Total requirement for 45 week 9000 units
Carrying cost 20% of average inventory.
What is the EOQ? What is the frequency of placing the orders?

EOQ with Details of Cost:

17. A manufacturer buys certain equipment from outside suppliers at Rs.30 per unit. Total annual need is
80000 units. The following further data are available.
Annual return on investment – 10%
Rent, Insurance, taxes per unit per year Rs.13
Cost of placing order Rs.100.
Determine the EOQ.

18. A car making company buys 2000 steel parts @ Rs.140 per part for assembly.
The buying cost per order is Rs.35.
The inventory carrying cost is Rs.14 per unit per year, calculated as:
Return on investment is 8% = 11.20
Rent, taxes, Insurance, handling charges etc. 2.80. Calculate the EOQ.

19. 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, Insurance, taxes per unit per year Rs.1
Cost of placing order Rs.100.
Determine the EOQ.

Computation of Stock Levels:

20. Normal usage 300 units per week
Maximum usage 450 units per week
Minimum usage 150 units per week
Reorder period 2 to 4 weeks
Reorder quantity 3600 units.
Calculate
a. Reorder level,
b. Minimum level,
c. Minimum level and
d. Average stock level.

21. Minimum consumption 100 units per day

Maximum consumption 175 units per day
Normal consumption 125 units per day
Reorder quantity 1500 units.
Reorder period 7 to 15 weeks.
Normal reorder period 10 days.
Calculate stock level.

22. Reorder quantity 1500 units.

Reorder period 4 to 6 weeks
Time required for emergence supplies 1 week
Maximum consumption 400 units per week

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 Normal consumption 300 units per week
Minimum consumption 250 units per week
Calculate stock level.

Stock Levels for Two or More Materials:

23. Two components X and Y, are used as follows:
Normal usage 50 units each per week.
Minimum usage 25 units each per week.
Maximum usage 75 units each per week.
Reorder quantity X: 400 units, Y: 600 units
Reorder period X: 4 to 6 weeks, Y: 2 to 4 weeks.
Calculate for each components
a. Reorder level,
b. Minimum level,
c. Maximum level,
d. Average level.

24. Two components A and B, are used as follows:

Normal usage 600 units each per week.
Maximum usage 900 units each per week.
Minimum usage 300 units each per week.
Reorder quantity A: 4800 units, B: 7200 units
Reorder period A: 4 to 6 weeks, B: 2 to 4 weeks.
Calculate for each components
a. Reorder level,
b. Minimum level,
c. Maximum level,
d. Average level.

25. Two components J and S are used as follows:

Normal usage 100 units each per week.
Maximum usage 150 units each per week.
Minimum usage 50 units each per week.
Reorder quantity J: 400 units, S: 600 units
Reorder period A: 6 to 8 weeks, B: 3 to 5 weeks.
Calculate for each components
a. Reorder level,
b. Minimum level,
c. Maximum level,
d. Average level.

26. Maximum consumption 9000 units per week

Minimum consumption 3000 units per week
Normal consumption 6000 units per week
Reorder quantity 36000 units per week
Time required for delivery 4 to 6 weeks.
Calculate a. Reorder level,
b. Minimum level,
c. Maximum level,
d. Average stock level and
e. Danger level

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Stock Levels and EOQ:
27. From the following particular calculate different stock levels.
1. Total cost of purchasing relating the order Rs.20
2. Number of units to be purchased during the year 11250
3. Purchase price per unit, including transport cost Rs.50
4. Annual cost of storage of one unit Rs.5
Lead time: Maximum 20 days
Minimum 6 days
Average 10 days
Maximum for emergency purchases 5 days.
Rate of consumption Minimum 10 units per days
Maximum 20 units per days.

28. From the following information calculate

a. Economic Ordering Quantity
b. Reorder Level
c. Maximum Level
d. Minimum Level
Normal usage 300 units per day.
Minimum usage 200 units per day.
Maximum usage 400 units per day.
Reorder period 50 to 60 days.
The annual usage is 100000 units.
The cost of purchase is Rs.200 per order.
Cost per unit is Re.1.00 carrying cost is 10% per annum.

Calculation Of Ordering Quantity From Given Information

29. The following information is available in respect of component D20:
Maximum stock level 8400 units
Budgeted consumption Maximum 1500 units per month.
Minimum 800 units per month.
Estimated delivery period Maximum 4 months
Minimum 2 months.
You are required to calculate a. Reorder Level, b. Reorder Quantity

30. From the following data available find out:

1. Reorder level
2. Reorder Quantity
Maximum stock level 16800 units
Budget consumption
Maximum 3000 units per month.
Minimum 1600 units per month.
Estimated delivery period
Maximum 4 months
Minimum 2 months.

Pricing of Material Issue:

FIFO and LIFO methods
1. The stock in hand of a material as on 1st September, 1997 was 500 units a Re.1 per unit.
The following purchases and issue were subsequently made.
Prepare the stores ledger account showing how the value of issue would be recorded under
a) FIFO and
b) ) LIFO

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 Purchased Issued
Sep. 6 100 units @ Rs.1.10 Sep. 9 500 units
Sep. 20 700 units @ Rs.1.20 Sep. 22 500 units
Sep. 27 400 units @ Rs.1.30 Sep. 30 500 units
Oct. 13 1000 units @ Rs.1.40 Oct. 15 500 units
Oct. 20 500 units @ Rs.1.50 Oct. 22 500 units
Nov. 17 400 units @ Rs.1.60 Nov. 11 500 units

2. The following transactions occur in the purchase and issue of a material:

Jan. 2 Purchased 4000 units @ Rs.4.00 per units
Jan. 20 Purchased 500 units @ Rs.5.00 per units
Feb. 5 Issued 2000 units
Feb. 10 Purchased 6000 units @ Rs.6.00 per units
Feb. 12 Issued 4000 units
Mar. 2 Issued 1000 units
Mar. 5 Issued 2000 units
Mar. 15 Purchased 4500 units @ Rs.5.50 per units
Mar. 20 Issued 3000 units
 Prepare stores ledger account under FIFO and LIFO method
 What would be the value of stock in hand at the end of the period under each of these two methods?
3. Prepare stores ledger account under FIFO and LIFO methods
Jan
1 Opening Balance 300 Kg. @ Rs.25 per kg.
3 Purchased 500 Kg. @ Rs.26.60 per kg. (P.O.No.101)
4 Issued 220 Kg. (MR No.201)
10 Issued 440 Kg. (MR No.202)
20 Purchased 490 Kg. @ Rs.23 per kg. (P.O.No.102)
25 Issued 300 Kg.(MR No.203)
26 Surplus 20 Kg. returned to store, out of qty. issued on 4th Jan. (MR Note no.20)

4. Write a stores ledger account (UNDER FIFO) in proper form making use of the following information.
Date Transactions Units Rate(P.U)
Jan. 1 Balance 500 20
3 Issues 300
6 Purchases 800 22
8 Issues 400
12 Issues 300
14 Purchases 400 25
20 Issues 600
24 Purchases 500 28
25 Issues 300
28 Issues 100
The stock verifier found a shortage of 10 units on 30th and left a note.
5. The following is the summary of the receipts and issues of materials in a factory during February:
Date Transactions Kgs. Rate(P.U)
Feb. 1 Balance 500 25.00
3 Issues 70
4 Issues 100
8 Issues 80
13 Received from the suppliers 200 24.50
14 Refund of surplus from a work order 15 24.00
16 Issues 180

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20 Received from the suppliers 240 24.75
24 Issues 304
25 Received from the suppliers 320 24.00
26 Issues 112
27 Refund of surplus from a work order 12 24.50
28 Received from the suppliers 100 25.00
The stock verifier of the factory noticed that on the 15 th he had found a shortage of 5 kg. and on the
th
27 another shortage of 8 kg.
Write out the stores ledger account under FIFO and LIFO method recording the above transactions.

6. Draw a stores ledger card recording the following transactions under FIFO and LIFO method.
1998
1-Jul Opening Stock 2000 units @ Rs.5 each
5 Received1000 units @ Rs.5.50 each
6 Issued 500 units
10 Received5000 units @ Rs.6.00 each
12 Received 50 units out of issue made on 6th July
14 Issued 600 units
18 Return to suppliers 100 units out of goods received on 5th July
19 Received Back 100 units out if issue made on 14th July
20 Issued 150 units
25 Receive 500 units @ Rs.7 each
28 Issued 300 units
The stock verification report reveals that there was a shortage of 10 units on 18 th July and
another shortage of 15 units on 26th July.

Simple and Weighted Average Method:

7. Show the stores ledger entries as they would appear when using:
a) Simple average method
b) Weighted average method of pricing issues, in connection with the following transactions.
Date Transactions Units Price
1998
1 - Apr Balance 300 2.00
2 Purchased 200 2.20
4 Issued 150
6 Purchased 200 2.30
11 Issued 150
19 Issued 200
22 Purchased 200 2.40
27 Issued 150

8. From the following prepare stores ledger account under a. Simple average method and b.Weighted
average method
Receipts:
1.10.94 Op. Stock 200 units @ Rs.3.50 per unit
3.10.94 Purchased 300 units @ Rs.4.00 per unit
13.10.94 Purchased 900 units @ Rs.4.30 per unit
23.10.94 Purchased 600 units @ Rs.3.80 per unit
Issues:
5.10.94 Issued 400 units
15.10.94 Issued 600 units
25.10.94 Issued 600 units

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9. From the following prepare stores ledger account under a. Simple average method and b.Weighted
average method
1994
1-Dec Op. Stock 500 units @ Rs.2 each
3 Purchased 400 units @ Rs.2.10 each
5 Issued 600 units vide Market.R.No.15
7 Purchased 800 units @ Rs.2.40 each
9 Issued 501 units vide Market.R.No.22
Returned from
12 issued on 5th , 12 unit
17 Purchased 400 units @ Rs.2.50 each
25 Issued 600 units vide Market.R.No.30

10. From the following prepare stores ledger account under a. Simple average method and b.Weighted
average method
Receipts:
1.10.94 Op. Stock 500 unit-s @ Rs.3.50 per unit
3.10.94 Purchased 300 units @ Rs.4.00 per unit
13.10.94 Purchased 900 units @ Rs.4.30 per unit
23.10.94 Purchased 600 units @ Rs.3.80 per unit
Issues:
5.10.94 Issued 400 units
15.10.94 Issued 600 units
25.10.94 Issued 600 units

Unit 2 Completed

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