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IPCC_34e_Costing _ Materials_ Assignment Solutions ___________________1
No.1 for CA/CWA & MEC/CEC MASTER MINDS
2. MATERIALS
SOLUTIONS TO ASSIGNMENT PROBLEMS
Problem No. 1
CAS2
EOQ =
A = Units consumed during year
S = Ordering cost per order
C = Inventory carrying cost per unit per annum.
1008X2
50X000,10X2EOQ =
425X50X000,10X2
EOQ = = 2,500 kg.
No. of orders to be placed in a year = EOQ
annumpermaterialsofnconsumptioTotal
= .kg500,2.kg000,10
= 4 Orders per year
Problem No. 2 a) Total Annual Cost in Existing Inventory Policy
(`) Ordering cost (6 orders @ ` 25) 150
Carrying cost of average inventory (36,000 ÷ 6) = 6,000 units per order
Average inventory = 3,000 units
Carrying cost = 20% of ` 1 × 3,000 = 3,000 × 0.20 600
Total cost A 750 b) Total Annual Cost in E.O.Q
%20X1
25X000,36X2EOQ= = 3000 units
(`) No. of orders = 36,000 ÷3,000 units = 12 orders
Ordering cost (12 × ` 25) = 300
Carrying cost of average inventory (3,000 × 0.20) ÷ 2 = 300
Total Cost B 600
Savings due to EOQ ` (750 – 600) (A – B) 150 Note: As the units purchase cost of ` 1 does not change in both the computation, the same has not been considered to arrive at total cost of inventory for the purpose of savings.
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IPCC_34e_Costing _ Materials_ Assignment Solutions _________________2
Ph: 98851 25025/26 www.mastermindsindia.com
Problem No. 3
Quantity to be purchased at a time = 50.36of%2050X250,18X2
= 3.7000,25,18
= 000,50,2 = 500 units
Problem No. 4
a) EOQ = IXC
AO2 =
12.0X15350X)12X000,52(X2
= 15,578 units of component ‘X’ b) Extra cost incurred by the company:
Total cost (when order size is 52,000 units) = Total ordering cost + Total carrying cost
= IXCX2Q
OXQA +
= %12X15X2000,52
350`X000,52
12X000,52 +
= `4,200+`46,800 = `51,000
Total cost, when order size is 15,578 units
= %12X15X2578,15
350X578,15
12X000,52 +
= 14,020+14,020 = 28,040
∴ Extra cost incurred = `51,000- `28,040 = `22,960 c) Minimum carrying cost, the company has to incur:
= IXCX2Q
= %12X15X2578,15
= `14,020.
Problem No. 5
Given that,
Annual requirement (A) = 2,000 × 12 = 24,000 Packets
Carrying Cost (C) = 10 ×10% = Rs.1 per packet p.a
Ordering cost (S) = Re.1.20 per order.
a) Economic Order Quantity (EOQ) = C
2AS = 1
1.2024,0002 ×× = 240 Packets
b) Total of holding and carrying costs = Associated cost = 2ASC
= 1X20.1X000,24X2
= Rs.240
IPCC_34e_Costing _ Materials_ Assignment Solutions ___________________3
No.1 for CA/CWA & MEC/CEC MASTER MINDS
c) Monthly demand as given = 2,000 Packets
Consumption per day = 30
2000 = 66.67 Packets per day.
Existing stock will last for = 66.67200 = 3 days.
Conclusion: Immediately, by the time the existing stock will get exhausted a new delivery will be obtained (It takes 3 days for New delivery). Therefore, the new order is to be placed immediately.
Problem No. 6
Calculation of EOQ:-
Given,
Annual Usage (A) = 8,000 units
Ordering cost per order(S) = Rs.200
Carrying cost per unit p.a (C)= 400 X 20% = Rs. 80
CAS2
EOQ =80
200X000,8X2= = 200 units.
Calculation of total inventory cost p.a. at EOQ:
Particulars Amount Purchase cost = 8,000 X 400 32,00,000
Ordering cost
= 200X200000,8
XOQA
8,000
Carrying cost
= %20X400X2
200iXCX
2Q
8,000
32,16,000 Calculation of total inventory cost p.a. with quantity discount:
Particulars Amount Purchase cost = 8,000 X (400 - 4%) 30,72,000
Ordering cost
= 200X000,4000,8
XOQA
400
Carrying cost
= %20X384X2000,4
CX2Q
1,53,600
Total Rs.32,26,000 Quantity discount offered should not be accepted as it results in increase in total cost of inventory management by Rs. 10,000.
Problem No. 7
(i) Given 1kg of M requires 3 kgs of ‘X’ and quarterly demand = 8000 units of M.
∴ Annual requirement of ‘X’ = 8000 X 4 X 3kgs
= 96000 kgs of ‘X’
‘S’ ordering Cost = 1,000 per order
Carrying Cost ‘C’ = 20 X 15% = 3
IPCC_34e_Costing _ Materials_ Assignment Solutions _________________4
Ph: 98851 25025/26 www.mastermindsindia.com
⇒EOQ = 3
)96000)(1000(2= 8000 units.
Associated cost = 3X1000X)96000(2 = 24000
Raw Material Cost = 96000 X 20 per kg = 19,20,000
Total Cost = 19,44,000
(ii) If Company accepts discount then order size = orders4
96000= 24000 units
Then purchase price = 720 – 2% = 19.6 Carrying cost = 19.6 X 15% = 2.94 ∴ Ordering Cost = 4 orders X 1000 = 4000
Carrying Cost = 24000 X 21
X 2.94 = 35,280
Raw Material Cost = 96,000 kgs X 19.6 per kg = 18,81,600 Total Cost at Discount = 19,20,880 Discount should be accepted by the company as it results in savings of (19,44,000 - 19,20,880) = 23,120
Problem No. 8 A = 5,000 tonnes
S = Rs.1,200
CI = 20%
P = Rs.1,500
C = 10020
X500,1 = 300
Statement showing calculation of total cost at different order sizes:
Order size No.of orders
Ordering cost p.a
Carrying cost p.a
Materials coat p.a
Total cost(M+C.C+O.C)
p.a 400 12.5 15,000 48,000 60,00,000 60,63,000 500 10 12,000 59,000 59,00,000 59,71,000
1,000 5 6,000 1,16,000 58,00,000 59,22,000 2,000 2.5 3,000 2,28,000 57,00,000 59,31,000 3,000 1.67 2,004 3,36,000 56,00,000 59,38,000
Therefore Economical purchase level = 1,000 tonnes (least cost) Note:
a) Number of orders = EOQ
A
Ordering cost = no. of orders X cost per order
Carrying cost = 2
C.C %of X Price X size Order
Material cost = Annual demand X price per tone
IPCC_34e_Costing _ Materials_ Assignment Solutions ___________________5
No.1 for CA/CWA & MEC/CEC MASTER MINDS
b) EOQ, when price is Rs.1,500
EOQ = C
2AS
= Rs.200
Associated cost = ASC2 = Rs.60,000.
Problem No. 9 Working Notes: 1. EOQ without discount
EOQ = CAS2
= 4`
20`XUnits250X2
= 500,2 = 50 units
2. Prices with discount for different order size
5% Discount = 30 – 5% = ` 28.50
10% Discount = 30 – 10% = ` 27.00
12% Discount = 30 – 12%= ` 26.40
Statement of Computing Total cost at various order sizes
Orders size
(units)
No. of Orders in a year
Ordering Cost (`)
Carrying cost of average
inventory (`)
Purchase cost (`)
Total cost (`)
(1) (2) (3) (4) (5) (3+4+5)= (6) 50
5
Units50
Units250
100 (5 orders×`20) 100
4X
2Units50
7,125
(250 ×`28.50) 7,325
100 2.5
Units100Units250
50
(2.5 oders×`20) 200
4X
2Units100
6,750
(250 ×`27)
7,000
125 2
Units125Units250
40
(2 oders×`20) 250
4X
2Units125
6,750
(250 ×`27)
7,040
200 1.25*
Units200
Units250
25 (1.25
oders×`20) 400
4X
2Units200
6,600
(250 ×`26.4)
7,025
250 1
Units250Units250
20
(1oder×`20) 500
4X
2Units250
6,600
(250 ×`26.4)
7,120
Optimal order quantity = 100 units
Minimum total cost of inventory and purchasing cost = ` 7,000.
Note: Theoretically it may be 2.5 orders, (250÷100), however practically 3 orders are required.
Therefore ordering cost would be ` 60 (3 × 20) and total cost ` 7,010 (60 + 200 + 6750).
(* Theoretically orders may be in fraction but in practicality orders shall be in a whole number.)
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IPCC_34e_Costing _ Materials_ Assignment Solutions _________________6
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Problem No. 10
Working notes:
1. Annual demand (30,000 units per quarter × 4 quarters) = 1,20,000 units
2. Raw material required for 1,20,000 units (1,20,000 units × 1.5 kg.) = 1,80,000 kg.
3. EOQ = 2
000,1X.kgs000,80,1X2
= 13,416 kgs.(appx)
4. Total cost of procurement and storage when the order size is equal to EOQ or 13,416 kg.
No. of orders (1,80,000 kg. ÷ 13,416 kg.) = 13.42 times or 14 times
Ordering cost (14 orders × `1,000) = ` 14,000
Carrying cost (½ × 13,416 kg. × ` 2) = ` 13,416
Total cost = ` 27,416
(i) Re-order point = Safety stock + Lead time consumption
= days24Xdays360
.kg000,80,1.kg000,8 +
= 8,000 kg. + 12,000 kg. = 20,000 kg.
(ii) Statement showing the total cost of procurement and storage of raw materials (after considering the discount)
Order size
No. of orders
Total cost of procurement
Average stock
Total cost of storage of raw
materials Discount Total Cost
Kg. (`) Kg. (`) (`) (`) (1) (2) (3)=(2)×`1,000 (4)=½×(1) (5)=(4)×`2 (6) (7)=[(3)+(5)– (6)]
1,80,000 1 1,000 90,000 1,80,000 32,000 1,49,000 90,000 2 2,000 45,000 90,000 20,000 72,000 45,000 4 4,000 22,500 45,000 - 49,000 30,000 6 6,000 15,000 30,000 - 36,000
(iii) Number of orders which the company should place to minimize the costs after taking EOQ also into
consideration is 14 orders. Total cost of procurement and storage in this case comes to ` 27,416 (please refer working note-4 above), which is minimum.
Problem No. 11
A = Annual usage = 1,800 x 12 = 21,600 units
S = Ordering cost per order = Rs.5
C = Carrying cost per unit per annum = 0.20 x 12m = Rs.2.40
a) E.O.Q. = CAS2
= 40.2
5x600,21x2= 300 units
b) Calculation of Reorder point:
Given lead time = 2 days
Consumption / day = days30units800,1
= 60 units / day
IPCC_34e_Costing _ Materials_ Assignment Solutions ___________________7
No.1 for CA/CWA & MEC/CEC MASTER MINDS
Lead time consumption = 2 days x 60 units = 120 units
Safety stock = 50% (120 units)
= 10050
x120 = 60 units
Reorder point = lead time consumption + safety stock
= 120 + 60 = 180 units
c) Calculation of economic purchase level
No.of Orders
Order Qty per month
O.C per month (No.of order x O.C per order)
C.C per month (1/2 x avg inventory
x C.C.P.U.P.M) Discount
Net Cost (O.C+C.C-Discount)
1 1800 1x5=5 180 20 165
2 900 2x5=10 90 15 85
3 600 3x5=15 60 10 65
4 450 4x5=20 45 6 59
5 360 5x5=25 36 - 61
6 300 6x5=30 30 - 60
7 257 7x5=35 26 - 61
Economical purchase level = 450 Units
Problem No. 12
a) EOQ = PCAO2
Where, A = annual consumption
O = ordering cost per order
PC = carrying cost per unit per annum
= )100/24(X112X000,12X2
= 24.0
288
= 000,00,12
= 1,095.4 units say 1,100 units b) When should the order be placed i.e. reordering level
Reordering level = Safety stock + Normal lead time consumption
Reordering level =
+
15X
360000,12
30X360
000,12
= 1,000 + 500 = 1,500 units c) What should be the inventory level immediately before the material ordered is received i.e.
safety stock
Safety stock =
30X
360000,12 = 1,000 units
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IPCC_34e_Costing _ Materials_ Assignment Solutions _________________8
Ph: 98851 25025/26 www.mastermindsindia.com
Problem No. 13
Given
A B
Max usage (weekly) 75 75
Average Usage 50 50
Minimum Usage 25 25
R.O.Q 300 500
Lead time Maximum Minimum Average
+2MaximumMinimum
A B
6 4
4 2
5 3
a) R.O.L = Maximum usage X Maximum Lead time
(A) = 75 X 6 = 450 (B) = 75 X 4 = 300
b) Minimum Stock level = R.O.L – (Average Usage X Average Lead Time)
(A) = 450 – (50 X 5) = 200 (B) = 300 – (50 X 3) = 150
c) Maximum Stock Level = R.O.L + R.O.Q – (Minimum Usage X Minimum L.T) (A) = 450 + 300 – (25 X 4) = 650 (B) = 300 + 500 – (25 X 2) = 750
d) Average Stock level = 2
LevelStockMaximumLevelStockMinimum +
(A) = 2
650200 += 425
(B) = 2
750150 += 450
Problem No. 14
(i) Economic Order Quantity (E.O.Q)
= annumperunitpertcoscarryingAnnual
orderpertcosorderingXxRe'oftrequiremenAnnualX2
= %15X10
800Xunits000,60X2
= 5.1000,60,9
= 8,000 units
(ii) Re-order Level = Safety Stock + (Normal daily Usage × Re-order period)
=
+ days10X
days300units000,60
600
= 600 + 2,000 = 2,600 units (iii) Maximum Stock Level = E.O.Q (Re-order Quantity) + Safety Stock
= 8,000 units + 600 units
= 8,600 units
IPCC_34e_Costing _ Materials_ Assignment Solutions ___________________9
No.1 for CA/CWA & MEC/CEC MASTER MINDS
(iv) Average Stock Level = QuantityorderRe21
levelstockMinimum −+
= units000,821
*600 +
= 4,600 units
Average Stock Level = 2
levelstockMinimumlevelstockMaximum +
= 2
units600units600,8 +
= 4,600 units
* Minimum Stock Level = Re-order level – (Normal daily usage × Re-order period)
=
− days10X
days300units000,60
600,2
= 2,600 – 2,000 = 600 units
OR
Minimum Stock Level = Safety Stock level = 600 units
Problem No. 15
a) Re-order Quantity = Economic order Quantity -200kgs
= 1200kg -200kg
= 1000kg
Economic order Quantity (EOQ) =CAS2
=%.X
kgXX7613125
720172002
=1200 kg
A= Annual consumption /purchase
S = Ordering Cost per order
C = Carrying cost per unit per annum
No. of units to be sold 10,000units
(+) closing stock of Finished Goods Nil
(-) o/p stock of Finished Goods 900 units
Production 9100 units
Annual consumption 18200kg (9100x2kg)
(+) Closing stock of RM Nil
(-) o/ping stock of RM 1000kg
Annual Demand/purchase 17200 kg
b) Maximum stock level :
= Reorder level + Reorder Quantity – (Min consumption per day x min lead time)
= 560kg +1000kg - (30kg x 4 days)
=1560kg-120kg = 1440kg
IPCC_34e_Costing _ Materials_ Assignment Solutions _________________10
Ph: 98851 25025/26 www.mastermindsindia.com
Re order level = Maximum Consumption per day x maximum lead time
=
+ Kg
daysof.NonconsumptioAnnual
20 x 8days
= days8xkg20364
kg18200
+
= 560kgs Max consumption per day = 50 kg + 20kg =70 kg
Average Consumption = Min consumption + Max. consumption
2
50kg = Min consumption +70 kg
2
Min. consumption = 100-70 = 30kg
c) Minimum stock level:
= Reorder level – (Average consumption per day x Average lead time)
= 560 kg – (50kg x 6 days) = 260kg d) Impact on the Profitability of the company by not ordering the EOQ
Particulars When purchasing the ROQ when purchasing the EOQ
Order Quantity 1000kg 1200kg
No of orders a year
EOQ/ROQA
18 orders
100017200
15 orders
120017200
Ordering cost (No of orders x s) 12960
10800
Carrying cost
CX21
X)EOQ/ROQ(=
8600
2.17X
21
X1000
10320
217
21200
.X
Associated cost (O.C+C.C) 21560 21120
Extra cost incurred due to not ordering EOQ = 21560-21120 = 440.
Problem No. 16 Given that,
Reorder Level (ROL) = 64,000 units
Reorder Quantity (ROQ) = 40,000 units
Minimum Stock = 34,000 units
Maximum Stock = 94,000 units
Average lead time = 2.5 days
⇒ Average lead time = 2.5 days
⇒
2TimeLeadMin.TimeLeadMax. +
= 2.5 days
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IPCC_34e_Costing _ Materials_ Assignment Solutions ___________________11
No.1 for CA/CWA & MEC/CEC MASTER MINDS
⇒ Maximum + Minimum = 5 days
Maximum – Minimum = 3 days (Given in the problem)
2 Maximum = 8 days
∴ Maximum lead time = 4 days; Minimum lead time = 1 day Maximum Usage:
⇒ Reorder level = Maximum usage × Maximum lead time
⇒ 64,000 = Maximum usage × 4;
∴ Maximum usage = 4
64,000 = 16,000 units
Minimum Usage:
⇒ Maximum level = Reorder level + Reorder quantity – (Minimum usage × Minimum lead time)
⇒ 94,000 = 64,000 + 40,000 – (minimum usage × 1)
∴ Minimum usage = 1,04,000 – 94,000 = 10,000 units
Problem No. 17 Given that,
Minimum Stock Level of A = 4,000 units.
Average Stock Level of A = 9,000 units.
Average level = Minimum level + 21
ROQ
⇒ 9,000 = 4,000 + 21
ROQ ⇒ 21
ROQ = 5,000
∴ Reorder Quantity = 10,000 units
Problem No. 18
i) Economic order Quantity(EOQ) =CAS2
=5.17
000,35X000,36X2
= 12000 Litres ii) 10% of risk of being out of stock indicates 90% of having stock. which will take 14days lead time
Safety stock = daysA
360x (14 days-12 days)
= daysx,
236000036
= 200litres
Reorder point = Minimum stock level + (Average lead time x Average consumption)
= 200 + (12x100)
= 1400 litres
iii) At 5% risk of being out stock represent 95% chance of having stock
Safety stock days = 15 days -12 days
= 3 days
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IPCC_34e_Costing _ Materials_ Assignment Solutions _________________12
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Total ordering cost = No of orders sxEOQ
A
= 3500012000
00036X
,
= Rs1,05,000
Total carrying cost of inventory = (safety stock + Average inventory x carrying cost/pu/p.a)
=
+ )21
x12000(days3x360
36000 x 990* x1.7676%
= (300+6000) x 990x 1.7676%
= Rs. 110245.212 x 900+10% = 990
Problem No. 19
Material Turnover Ratio (In times) = stock Averageconsumed material Cost (In days) =
times No.ofdays 365
Particulars Material A Material B Material Consumed
(Opening Stock + Purchases – Closing Stock)
10,000 + 52,000 – 6,000 = 56,000 units
9,000 + 27,000 – 11,000 = 25,000 units
Material Turnover Ratio (In times)
8,000
56,000 = 7 times
10,00025,000
= 2.5 times
Material Turnover Ratio (In days)
7
365 = 52 days
2.5365
= 146 days
Conclusion: Material A is fast moving item compared to Material B.
Problem No. 20 i) Calculation of purchase cost per kg of each Raw materials
Particulars Mustard Soya bean olive Whole sale market: Purchase Price 15 11 36 (+) CST 0.3 - - (+) Import Duty - - - (+) Loading cost
0.20
kg5010
0.20 0.20
0.04
kg50Rs2
0.04 0.04 (+) un loading cost
15.54 11.24 36.24 Farmers: Purchase Price 12.50 9 28 (+) CST - - - (+) Import Duty - - 2.8 (+) loading cost
0.10
kg505
0.06 0.50
(+) un loading cost 0.04
kg502
0.04 0.04
12.64 9.10 31.34
IPCC_34e_Costing _ Materials_ Assignment Solutions ___________________13
No.1 for CA/CWA & MEC/CEC MASTER MINDS
ii) Statement showing EOQ of each material under Each option:
Particulars Mustard Soyabean Olive
Annual Requirement (A) 27,00,000kg (45000x5kgx12Months)
1080,000kg 162000kg
Whole Sale Market:
Transportation cost 6000 9000
3000
Sorting / piling cost - -
1800
Order cost /order (S) 6000 9000 4800
Interest on cash credit
1.9425(15.54x12.5%) 1.4050 4.5300
Warehouse rent 1 1 1
Caring cost/p.u/p.a 2.9425 2.4050 5.5300
EOQ
CAS2
104933.539425.2
6000x2700000x2 89906.40 16769.90
Farmers:
Transportation cost 15,000 12,000 11,000
Sorting / piling cost 1,200 800 -
Order cost /order (S) 16,200 12,800 11,000
Interest on cash credit 1.58(12.64x12.5%) 1.1375 3.9175
Warehouse rent 1
Kg100Rs100
1 1
Carrying cost/p.u/p.a (c) 2.5800 2.1375
4.9175
EOQ CAS2
184138.47
9425,26000X000,2700X2
113730.98 26921.34
iii) Statement showing Annul cost of R.M (Olive)
Particulars Whole sale Market Farmers
Annul Requirement(A) 162000Kg 162000kg
Order Quantity (Q) 16769.90 16200
No. of orders (QA
) 9.66 @ 10 1
a. Total Ordering cost (No of orders x s) 48000 11000
b. Total carrying cost (order Quantityx1/2 xc) 46368.77 398375
c. purchase cost 5870880 5077080
Total Cost (a+b+c) 5965248.77 5486397.50
Decision: It is best to purchase the olive from famer because of its lower cost
IPCC_34e_Costing _ Materials_ Assignment Solutions _________________14
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Problem No. 21
A B
Particulars Quantity Price Quantity Price
Raw Material Price 10,000 @ 10 per kg
1,00,000 8,000 @ 13 kg 1,04,000
Add: C.S.T @ 10% - 10,000 - 10,400 - 1,10,000 - 1,14,400
Less: Normal Loss units
500 - 320 -
9,500 1,10,000 7,680 1,14,400 Add: Railway freight (W.N.1)
- 2,133 - 1,707
9,500 1,12,133 7,680 1,16,107 Less: 2% further
deterioration 190 - 154 -
9,310 1,12,133 7,526 1,16,107 W.N.1: Railway freight Expenditure is divided on the basis of quantity of Chemical A and B.
i.e. in the Ratio of 10:8 = 2133 and 1707
∴ Cost per kg of chemical A & B
QuantityCost
= 9310
133,12,1and
7526107,16,1
= 12.04 and 15.43
Problem No. 22
Statement showing Stores Ledger (F1FO)
Receipts Issues Balance Date Particulars
Qty R.P.U Amt Qty R.P.U Amt Qty R.P.U Amt 1-9-01 Opening Stock - - - - - - 25 20 500 4-9-01 Issues - - - 8 20 160 17 20 340
6-9-01 Receipts from B &.Co.
20
18
360
-
-
-
17 20
20 18
340 360
10-9-01 Returns to B &.Co.
-
-
-
10
18
180
17 10
20 18
340 180
13-9-01 Issues - - - 15 20 300 2 10
20 18
40 180
15-9-01 Receipts from M&.Co.
20
19
380 - - -
2 10 20
20 18 19
40 80
380
17-9-01 Issues - - - 2 8
20 18
40 144
2 20
18 19
36 380
20-9-01 Returns from M & Co. 5 19 95 - - -
2 25
18 19
36 475
30-9-01 Shortages - - - 2 18 36 25 19 475 45 860
Value of closing stock under FIFO Method (25 units) = Rs. 475.
Value of Raw material consumed under FIFO Method (45units) = Rs. 860.
IPCC_34e_Costing _ Materials_ Assignment Solutions ___________________15
No.1 for CA/CWA & MEC/CEC MASTER MINDS
Treatment of shortage: Assuming it as a normal loss, treated as issues. Note 1: Returns to B & Co. is to be recorded at the price at which the material was purchased. Note 2: Returns to supplier – Issues (purchase price) Returns from production Dept. to stores Dept. – Receipts (Issue price) Note 3: Returns from production Dept. – 20-09-01 Note 4: Transfer from one job to another job – to be ignored as it is a transaction taken place only in production department. Note 5: Transfer from Dept. A to Dept. B – is to be ignored.
Assumptions:
1. Returns were made out of the issues in the month of August.
2. The purchase price of materials from M & Co. is Rs.19 per unit.
Problem No. 23
Stores Ledger of AT Ltd. for the month of September, 2011 (FIFO Method)
RECEIPT ISSUE BALANCE Date GRN
No. MRR No.
Qty. Units
Rate (`)
Amount (`)
Requisition No.
Qty. Units
Rate (`)
Amount (`)
Qty. Units
Rate (`)
Amount (`)
1-9-11 — — — — — — — — 25 6.50 162.50 4-9-11 — — — — 85 8 6.50 52 17 6.50 110.50 6-9-11 26 50 5.75 287.50 — — — — 17 6.50 50 5.75 398.00 7-9-11 — — — — 97 12 6.50 78 5 6.50 50 5.75 320.00 10-9-11 — — — — Nil 10 5.75 57.50 5 6.50 40 5.75 262.00 12-9-11 — — — — 108 5 6.50 10 5.75 90 30 5.75 172.50 13-9-11 — — — — 110 20 5.75 115 10 5.75 57.50 15-9-11 33 25 6.10 152.50 — — — — 10 5.75 25 6.10 210.00 17-9-11 — — — — 121 10 5.75 57.50 25 6.10 152.50 19-9-11 38 10 5.75 57.50 — — — — 25 6.10 10 5.75 210.00 5 5.75 20-9-11 4 5 5.75 28.75 — — — — 25 6.10 10 7.75 258.75 26-9-11 — — — — 146 5 5.75 20 6.10 5 6.10 59.25 10 5.75 179.50 30-9-11 — — — — Shorta
ge 2 6.10 12.20 18 6.10
10 5.75 167.30 Working Notes:
1. The material received as replacement from vendor is treated as fresh supply.
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2. In the absence of information the price of the material received from within on 20-9-11 has been
taken as the price of the earlier issue made on 17-9-11. In FIFO method physical flow of the material is irrelevant for pricing the issues.
3. The issue of material on 26-9-11 is made out of the material received from within.
4. The entries for transfer of material from one job and department to other on 22-9-11 and 29-9-11 are book entries for adjusting the cost of respective jobs and as such they have not been shown in the stores ledger account.
5. The material found short as a result of stock taking has been written off.
Problem No. 24
Stores ledger [FIFO]
Receipts Issues Balance Date Particulars Units Rate Amount Units Rate Amount Units Rate Amount
Jan 1. Purchase 100 1 100 - - - 100
1
100
Jan 20 Purchase 100 2 200 - - - 100 100
1 2
100 200
Jan 22 Issue (Job w/16)
- - - 60 1 60 40 100
1 2
40 200
Jan 23 Issue (JobW17) - - - 40 20
1 2
40 40
80 2 160
Stores ledger [LIFO]
Receipts Issues Balance Date Particulars Units Rate Amount Units Rate Amount Units Rate Amount
Jan 1. Purchase 100 1 100 - - - 100
1
100
Jan 20 Purchase 100 2 200 - - - 100 100
1 2
100 200
Jan 22 Issue (Job W16) - - - 60 2 120 100
40 1 2
100 80
Jan 23 Issue (JobW17) - - - 40 20
2 1
80 20
80 1 80
Stores ledger [Weighted average Method]
Receipts Issues Balance Date Particulars Units Rate Amount Units Rate Amount Units Rate Amount
Jan 1. Purchase 100 1 100 - - - 100
1
100
Jan 20 Purchase 100 2 200 - - - 200 1.5 300 Jan 22 Issue
(Job W16) - - - 60 1.5 90 140 1.5 210
Jan 23 Issue (JobW17) - - - 60 1.5 90 80 1.5 120
Statement showing value of job W 16, 17 & closing stock
Particulars FIFO LIFO Weighted average 60 80 160
120 100 80
90 90 120
Material for job 16 Job 17 Closing sheet 300 300 300
Conclusion:
a) In case of Rising Prices use of FIFO give rise to high profits & LIFO Method will give low Profits
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b) In case of weighted average there is no significant adverse (or) favorable effect on the cost material as well as an profits
c) Hence weighted Average method is Preferred over FIFO & LIFO Methods
Problem No. 25
Store Ledger of Aditya Ltd. (Weighted Average Method)
Date Receipts Issues Balance of Stock
Feb.
Qty (kg.)
Rate (`)
Amount (`)
Qty (kg.)
Rate (`)
Amount (`)
Qty (kg.)
Rate (`)
Amount (`)
1 - - - - - - 1,200 475.00 5,70,000
5 - - - 975 475.00 4,63,125 225 475.00 1,06,875
6 3,500 460.00 16,10,000 - - - 3,725 460.91 17,16,875
7 - - - 2,400 460.91 11,06,175 1,325 460.91 6,10,700
9 475 460.91 2,18,932 - - - 1,800 460.91 8,29,632
15 1,800 480.00 8,64,000 - - - 3,600 470.45 16,93,632
17 - - - 140 480.00 67,200 3,460 470.07 16,26,432
20 - - - 1,900 470.07 8,93,133 1,560 470.06 7,33,299
28 - - - 180* 470.06 84,611 1,380 470.06 6,48,688
* 180 kgs. is abnormal loss, hence it will be transferred to Costing Profit & Loss A/c.
Problem No. 26 a) Total purchases over a fen rod of 6 months =2500 units (Jan to June)
Total issues over a period of 6 month = 2300 units
Closing stock in June month (2500-2300) = 200 units
Last month (June) period of 600units & issue in the same month is 400units. It means entire closing stocks on June month (200 units) are out of June month purchase. It means that there is no opening stock a June month
i) Hence No Matter which method of pricing issue is used, will result the same value of closing stock.
ii) Therefore argument of chief Accountant is tenable b) LIFO Method:
i) Under this method, the cost of materials issued will be either nearer (or) will reflect the current market price.
ii) The use of the method during the period of rising prices does not reflect undue high profit in the income statement, as it was under the FIFO (OR) Average method.
iii) In the case of falling prices, profit tends to rise due to lower material cost, yet the finished goods appear to be more competitive and are at market price.
iv) During the period of Inflation, LIFO will tend to show the correct profit & thus, avoid paying undue Taxes to some extent.
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Problem No. 27
Classification of the items of inventory as per ABC analysis
1. 15 number of varieties of inventory items should be classified as ‘A’ category items because of the following reasons:
a) Constitute 0.375% of total number of varieties of inventory handled by stores of factory, which is minimum as per given classification in the table.
b) 50% of total use value of inventory holding (average) which is maximum according to the given table.
c) Highest in consumption about 85% of inventory usage (in end-product). 2. 110 number of varieties of inventory items should be classified as ‘B’ category items because of the
following reasons :
a) Constitute 2.750% of total number of varieties of inventory items handled by stores of factory.
b) Requires moderate investment of about 30% of total use value of inventory holding (average).
c) Moderate in consumption about 10% of inventory usage (in end–product). 3. 3,875 number of varieties of inventory items should be classified as ‘C’ category items because of
the following reasons:
a) Constitute 96.875% of total varieties of inventory items handled by stores of factory.
b) Requires about 20% of total use value of inventory holding (average).
c) Minimum inventory consumption i.e. about 5% of inventory usage (in end-product).
THE END
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