2.

Materials Cost

1. A company’s books of accounts revealed the following:

Staff salaries of Purchase department is ` 2,50,000.

Expenses incurred towards Warehouse personnel salaries ` 2,75,000.
Cost of security for Warehouse is ` 80,000.
Travelling and purchase follow up expense ` 80,000.
Taxes and insurance is 1% p.a.
Interest rate on inventory value is 20% p.a.
Cost of bills payment is ` 30,000.
Cost of materials handling in store is ` 1,50,000.
Obsolescence and pilferage is ` 20,000.
Cost of in-wards inspection is ` 48,000.

The company has an average inventory of ` 60 lakhs and has placed 3,400
orders in the year of review. Calculate the cost per order and inventory
Carrying cost as a percentage based on the above costs. What would be the
EOQ, if annual demand of an item is 12,000 numbers and unit price is ` 60 per
unit.

2. A Co. Ltd., furnishes the following stores transactions for August 2014:

Price per
Date Particulars Units
unit
1-8-2014 Opening Balance 50 7.50
4-8-2014 Issue 8
5-8-2014 Receipts from B& Co 50 7.25
6-8-2014 Receipts from C & Co 75 7.35
7-8-2014 Issue 21
7-8-2014 Loss on issue of material 1
10-8-2014 Return to B & co 20
12-8-2014 Issue 35
14-8-2014 Issue 20
15-8-2014 Receipts from K & Co 40 7.45
16-8-2014 Returns to C&co 25
17-8-2014 Issue 23
Received replacement
19-8-2014 20
from B & co
20-8-2014 Transfer from Dept. A to 10
 Dept. C
27-8-2014 Issue 40
30-8-2014 Shortage 12

Prepare Stores ledger under:

a) LIFO Method

b) Weighted average method

3. M/s. Tubes Limited is the manufacturers of picture tubes for T.V. The
following are the details of their operations during 2015:

Monthly demand 7,500 units

Ordering cost per order ` 500
Inventory carrying cost 10% per annum
Cost per unit ` 60
Normal usage 500 units per week
Minimum usage 250 units per week
Maximum usage 750 units per week
Re-order period 5 – 8 weeks

Compute from the above:

a) EOQ
b) Maximum Level
c) Minimum Level
d)Re-order Level
e) Average Stock Level

4. The following is the record of receipts and issues of a certain material in

the factory during a month:

01-03-2016 Opening balance 500 units @ ` 100 per unit.

05-03-2016 Issued 300 units.
08-03-2016 Received 600 units @ ` 102 per unit.
Issued 250 units (stock verification reveals loss of 5
10-03-2016
units).
15-03-2016 Received back from work order 100 units.
 (Previously issued at ` 91 per unit)
20-03-2016 Issued 400 units.
25-03-2016 Received 280 units at ` 104 per unit.
30-03-2016 Issued 300 units.

Prepare stores ledger under

i) LIFO Method

ii) Weighted Average Cost Method.

5. PQR Limited produces a product which has a monthly demand of 52,000

units. The product requires a component Z which is purchased at `15 per
unit. For every finished product, 2 units of component Z are required. The
ordering cost is `350 per order and the carrying cost is 12% p.a.

Required:

a) Calculate the Economic Order Quantity.

b) If the minimum lot size to be supplied is 52,000 units, what is the

extra cost the Company has to incur?

c) What is the minimum carrying cost the company has to incur?

6. Prepare a Stores Ledger Card from the following information pertaining to

material ‘X’; showing the pricing of issues on the basis of:

a) FIFO Method and

b) Weighted Average Method

Date Particulars
Jan 1 Purchased 100 units @ `10.00 each
2 Purchased 200 units @ ` 10.20 each
5 Issued 250 units to Job A, vide MRN 1,
7 Purchased 300 units @ ` 10.50 each
Returns from production department 15 units
8
pertaining to Jan 2 purchases
10 Purchased 200 units @ ` 10.80 each
 13 Issued 200 units to Job B vide MRN 2
15 Returns to supplier 25 units purchased on 7th
18 Issued 200 units to Job C vide MRN 3
20 Purchased 100 units @ ` 11.00 each
25 Issued 150 units to Job D vide MRN 4
28 Shortage of 10 units in physical verification

7. a) List out the duties of a store keeper.

b) In a manufacturing company a material is used as follows:

Maximum usage 12000 units per week
Minimum usage 4000 units per week
Normal usage 8000 units per week
Reorder quantity 48000 units

Time required for delivery is 4 to 6 weeks. You are required to calculate:

a) Reorder level b) Minimum level c) Maximum level d) Average stock
level

8. a) List out the various techniques of material control.

b) X Ltd., has purchased and issued the material M in the following order.

Units Unit Cost

Rs.
2007, March 01 Purchases 300 3
04 Purchases 600 4
06 Issue 400 ..
10 Purchases 600 4
15 Issue 1000 ..
20 Purchases 400 5
31 Issue 200 ..

Prepare stores ledger account under FIFO and LIFO Methods. Which of the
methods of pricing issue of materials would you recommend in this case?

9. Write explanatory notes on

a) Bin Card
b) Duties of Store Keeper
10. In a manufacturing company a material ‘A’ is used as follows :

Maximum usage 12000 units per week ;Minimum usage 4000 units per
week Normal usage 8000 units per week; Reorder quantity 48000 units
Time required for delivery 4 to 6 weeks. You are required to calculate :

a) Reorder level
b) Minimum level
c) Maximum level
d) Average stock level using Reorder Quantity
e) Danger level

11.a) State the advantages and disadvantages of FIFO method

b) ‘X’ Ltd., has purchased and issued the materials ‘M’ in the following
order.

2008 Units Unit Cost

March, 01 Purchases 300 3
March, 04 Purchases 600 4
March, 06 Issue 400 --
March, 10 Purchases 600 4
March, 15 Issue 1000 --
March, 20 Purchases 400 5
March, 31 Issue 200 --

Prepare stores ledger account under FIFO and LIFO methods. Which of the
methods of pricing issue of materials would you recommend in this case?

12. a) Write a short note on Economic order quantity

b) A factory requires 2,000 units of a certain material for a year. Cost of
carrying one unit of this material is calculated to be Re. 1 per annum and it is
estimated that the expenses of placing an order would amount to Rs. 10.
Calculate E.O.Q.
13. Tepee Ltd. a tent manufacturer, recorded the following transactions for the
month of May:

Date Units Purchased Unit cost (Rs) Units issued

1/05/2005 10 15 ----
5/05/2005 20 20 ----
15/05/2005 ----- ----- 15
19/05/2005 ------ ------ 10
24/05/2005 15 18 -----
30/05/2005 ---- ----- 15

Assume that the company uses a periodic inventory system and compute the
ending materials inventory and cost of materials under

a) Specific identification as materials issued on 15th came from 5th

purchases; issues of 19th came from beginning inventory and those
issued on 30th came from 5th and 24th purchases;
b) Weighted average cost
c) FIFO
d) LIFO

14. In a manufacturing company a material is used as follows:

Maximum usage 1,200 units per week
Minimum usage 400 units per week
Normal usage 800 units per week
Reorder quantity 4,800 units

Time required for delivery is 4 to 6 weeks. You are required to calculate:

A) Reorder level B) Minimum level

C) Maximum level D) Average stock level

15.X Ltd., has purchased and issued the material M in the following order.
Units Unit Cost
`
2014, March 01 Purchases 300 25
04 Purchases 600 30
06 Issue 400 --
 10 Purchases 600 40
12 Returns to supplier purchased on 4th 50 --
14 Issue 1000 --
18 Purchases 400 50
22 Issue 200 --
25 Returns from production dept. issued on 22nd 20 --

A shortage of 50 units was found in physical verification on 31st March

2014.

a) Prepare stores ledger account under FIFO and LIFO Methods.

b) Which of the above methods of pricing issue of materials would you

recommend in this case and why?

16. Explain the relevance of Purchase Order and Stores Requisition in Material
Cost Control.

17.Given below is the information pertaining to a material in a

Manufacturing Organisation.

Annual Consumption of the Material 25,000 units for 360 days

Cost per unit of the Material Rs.20/-
Ordering Cost Rs.50 per Order
Inventory Carrying Cost 25%
Normal Lead Time 20 days
Safety Stock 20 days Consumption

You are required to find out:

1. How much should be ordered each time?

2. When should the order be placed?
3. What should be the inventory level immediately before the material
ordered is received?
18. With the help of the following information prepare a Stores Ledger Card.
To even out the fluctuations in the prices of materials, Company decided to
follow simple average method for the first two issues, followed by
weighted average method for the next two issues. For the last two issues,
the Company decided that, if the per unit value, standing as the balance
after 22nd’s purchase is greater than 0.15 paise, it will follow a standard
price of 0.15 paise per unit. If not, it will continue with its weighted
average method:

November 1st Opening 24,000 Kgs. for Rs.7,500

balance
November 1st Purchase 44,000 Kgs. for Rs.7,600
November 1st Issue 10,000 Kgs.
November 5th Issue 16,000 Kgs.
November 12th Issue 24,000 Kgs.
November 13th Purchase 10,000 Kgs. for Rs.7,800
November 18th Issue 24,000 Kgs
November 22nd Purchase 50,000 Kgs. for Rs.8,000
November 28th Issue 30,000 Kgs.
November 30th Issue 22,000 Kgs.

Find out the value of closing stock from the Stores Ledger Card.

19. M/s. Tubes Limited are the manufacturers of picture tubes for T.V. The
following are the details of their operations during 2004:

Annual usage 5,200 tubes

Ordering cost per order Rs.100
Inventory carrying cost 20% per annum
Cost per tube Rs.500
Normal usage 100 tubes per week
Minimum usage 50 tubes per week
Maximum usage 200 tubes per week
Lead time to supply 6 – 8 weeks

Compute from the above:

a) E O Q b) Maximum Level c) Minimum Leve d) Reorder
Level e) Average Stock Level
20. Shagoon India Limited provides the following information in respect of
Material `A’:

Supply period 5 to 15 days

Rate of Consumption:
Average 15 units per day
Maximum 20 units per day
Yearly 5,000 units

Ordering costs are Rs.20 per order ; Purchase price per unit is Rs.50 ;
Storage costs are 10% of unit value. Compute:

a) Reorder level b) Minimum level c) Maximum level d) Average

Stock level e) Economic order quantity

21. Prepare the Stores Ledger Card by using (a) Weighted Average Method and
(b) LIFO Method of pricing issues in connection with the following
transactions:

Date Particulars Units Value(Rs.)

2006 Balance 300 600
March 1 b/d
2 Purchased 200 440
4 Issued 150 --
6 Purchased 200 460
11 Issued 150 --
19 Issued 200 --
22 Purchased 200 480
27 Issued 250 --

In a period of rising prices such as above what are the effects of each
method.
22. ABC Limited manufactures a special product “RUBY”. The following
particulars were collected for the year 2006:

a) Cost of placing an order Rs.100

b) Annual carrying cost per unit Rs.15

c) Usage rate for input: 25 units to 75 units per week

d)Reorder period 4 to 6 weeks

e) Normal usage 50 units per week

Compute for the input for Ruby:

i) Economic order quantity

ii) Minimum level
iii) Reorder level
iv) maximum level
v) Average stock level

23 Prepare a Stores Ledger Card showing the pricing of issues on the basis of:
i) Simple Average and
ii) Weighted Average methods from the information pertaining to
material `X’.

Date
1 Purchased 100 units @ Rs.10.00 each
2 Purchased 200 units @ Rs.10.20 each
5 Issued 250 units to Job A, vide MRN 1,
7 Purchased 300 units @ Rs.10.50 each
10 Purchased 200 units @ Rs.10.80 each
13 Issued 200 units to Job B vide MRN 2
18 Issued 200 units to Job C vide MRN 3
20 Purchased 100 units @ Rs.11.00 each
25 Issued 150 units to Job D vide MRN 4
24. PQR Limited produces a product which has a monthly demand of 52,000
units. The product requires a component Z which is purchased at Rs.15 per
unit. For every finished product, 2 units of component Z are required. The
ordering cost is Rs.350 per order and the carrying cost is 12% p.a.

Required:

a) Calculate the Economic Order Quantity.

b) If the minimum lot size to be supplied is Rs.52,000 units, what is the

extra cost the Company has to incur?

c) What is the minimum carrying cost the company has to incur?

25. At the beginning of February 2008, Quality Brush company had in stock
10,000 brushes valued @ Rs.10/- each. The following purchases are made
during February month:

4th February 4,000 brushes @ Rs.12.50

13th February 6,000 brushes @ Rs.15.00
23rd February 8,000 brushes @ Rs.16.50

Issues to shop floor were as follows :

18th February 16,000 brushes

28th February 10,000 brushes

You are required to :

a) Prepare a stores ledger card for the month of February 2008 under
principle of FIFO.
b) State the value of closing stock on 29th February, 2008 if the issues are
priced at “Weighted Average Method”.

26. X Limited Company buys its annual requirement of 36,000 units in 6

instalments. Each unit cost Re 1 and the ordering cost is Rs.25. The
inventory carrying cost is estimated at 20% of unit value.
 You are required to:

a) Determine E O Q

b) Find out the total annual cost of the existing inventory policy.

c) How much money can be saved by Economic Order Quantity?

27. The following is the record of receipts and issues of a certain material in
the factory during a month:

2009 March, 1 Opening balance 500 units @ Rs.100 per unit.

5. Issued 300 units.

8. Received 600 units @ Rs.102 per unit.

10. Issued 250 units (stock verification reveals loss of 5 units).

15. Received back from work order 100 units.

(Previously issued at Rs.91 per unit)

20. Issued 400 units.

25. Received 280 units at Rs.104 per unit .

30. Issued 300 units..

Prepare a stores ledger under i) LIFO Method and ii) Weighted

Average Cost Method.

28. From the following data, calculate :

i) E O Q ii) Reorder level iii) Minimum level iv) Maximum

level
v) Average Stock level

Maximum Consumption 300 units per month

Minimum usage 50 units per month
Average usage 150 units per month
Annual usage 1800 units
Lead time 2 to 4 months

Storage Costs are 25% per annum of average stock value.

Ordering costs are Rs.2 per order. Price per unit of material is 0.32 paise.

29. The following are the particulars of the receipt and issue of materials in a
factory during January 2011.

January 2, Opening balance 1000 kg at Rs.30

3, Issued 140 kg

4, Issued 200 kg

8, Issued 160 kg

13, Received from Vendor 400 kg at Rs.35

15, Returned surplus from a work order 30 kg at Rs.28

16, Issued 300 kg

18, Received from vendor 600kg Rs.32

20, Issued 550 kg

22, Received from vendor 400kg at Rs.34

24, Issued 250 kg

29, Return of surplus from a work order 40 kg at Rs.32

30, Received from Vendor 200 kg at Rs.36

Prepare Store Ledger showing the above transactions under FIFO and LIFO
method.

30. The stores ledger card of a manufacturing company revealed the following
entries of a particular material
Date Receipts Issues
Qty In Rate(`) Amount in Qty In Rate(`) Amount in
Units (`) Units (`)
January 3 4,000 1.80 7,200
January 5 2,000 1.75 3,500
January 8 10,000 19,500
January 11 5,000 9,750
January 16 3,000 1.85 5,550
January 21 3,000 1.90 5,700
January 24 10,000

Opening stock on January 1st was 20,000 units valued at ` 40,000. Closing stock
on January 31stas per physical verification was 6,950 units. Prepare a completed
stores ledger card using the appropriate method. What would be the value of
closing inventory under FIFO method.