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ModelAnswersSeries32009(3017)

LCCIInternationalQualifications

CostAccountingLevel3

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Forfurtherinformation

contactus:

Tel.+44(0)8707202909Email.enquiries@ediplc.com

www.lcci.org.uk

CostAccountingLevel3Series32009

Howtousethisbooklet

ModelAnswershavebeendevelopedbyEDItoofferadditionalinformationandguidancetoCentres,teachersandcandidatesasthey prepareforLCCIInternationalQualifications. Thecontentsofthis

bookletaredividedinto3elements:

(1) Questions reproducedfromtheprintedexaminationpaper

(2) ModelAnswers summaryofthemainpointsthattheChiefExaminerexpectedtoseein theanswers toeach question inthe examinationpaper,plusafullyworkedexampleorsampleanswer(whereapplicable)

(3) HelpfulHints where appropriate, additional guidance relating to individualquestionsortoexaminationtechnique

Teachersandcandidatesshouldfindthisbookletaninvaluableteachingtoolandanaidtosuccess.

EDI provides Model Answers to help candidates gain a general understanding of the standardrequired.ThegeneralstandardofmodelanswersisonethatwouldachieveaDistinctiongrade.EDIacceptsthatcandidatesmayofferotheranswersthatcouldbeequallyvalid.

EducationDevelopmentInternationalplc2009

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Page1of17

Allrightsreserved;nopartofthispublicationmaybereproduced,storedinaretrievalsystemortransmittedinanyformorbyanymeans,electronic,mechanical,photocopying,recordingorotherwisewithoutpriorwrittenpermissionofthePublisher. Thebookmaynotbelent,resold,hiredoutorotherwisedisposedofbywayoftradeinanyformofbindingorcover,otherthanthatinwhichitispublished,withoutthepriorconsentofthePublisher.

QUESTION1

Acompanyusesthreedifferentrawmaterials(RM1,RM2&RM3)whichitobtainsfromanoutsidesupplier.Thefollowinginformationisprovidedrelatingtoeachrawmaterial:

RawMaterialRM1

Balanceinstoresiscurrently250kgStockonorder1000kgAllocatedstockis350kg

RawMaterialRM2

Dailyusagevariesbetween240and360kgLeadtimefordeliveryvariesbetween15and21days.Orderquantityis10,000kg

RawMaterialRM3

Orderquantity1,000kgPurchaseprice2.00perkgMonthlyusage1,500kgSafety(buffer)stock1,000kg

Orderingcosts250perorderStockholdingcostsare20%oftheaveragestockholdingperannum.Thesupplierhasofferedadiscountoffthepurchasepriceiftheorderquantityisincreased.Detailsareasfollows:

OrderQuantity Discount1,000kg -1,500kg 5%3,000kg 7.5%

REQUIRED

(a) ForrawmaterialRM1calculatethefreestockcurrentlyavailable.(2marks)

(b) ForrawmaterialRM2calculate:

(i) thereorderlevel(ii) theminimumandmaximumstockcontrollevels.

(6marks)

(c) ForrawmaterialRM3determinetheorderquantitythatwouldminimisethetotalannualcosts.

(8marks)

(d) Brieflyexplainthemeaningof:

(i) Re-orderlevel(ii) Allocatedstock(iii) Freestock.

(4marks)

(Total20marks)

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3017/3/09/MA Page2of17

3017/3/09/MA Page3of17

MODELANSWERTOQUESTION1

(a) RawmaterialRM1

Freestock=Stockbalanceinstores+Stockonorder-Allocatedstock

Freestock=250kg+1000kg-350kg=900kg

(b) RawmaterialRM2

(i) Reorderlevel

=maximumusagexmaximumleadtime

=360x21 = 7,560kg

(ii) Minimumstockcontrollevel=Re-orderlevel-(averageusexaverageleadtime)

=7,560-(300x18)= 2,160kg

Maximumstockcontrollevel

=Re-orderlevel-(minimumusexminimumleadtime)+re-orderquantity

=7,560-(240x15)+10,000=13,960kg

(c) RawmaterialRM3

Quantitytominimiseannualcosts

Order quantity(kg) 1,000 1,500 3,000

Usageperyear(kg) 18,000 18,000 18,000

Number of orders per year 18 12 6

Averagestock [W1] 1,500 1,750 2,500

Material cost per kg() 2.00 1.90 1.85

Ordering costs() 4,500 3,000 1,500

Stock holding costs() 600 665 925

Total material cost 36,000 34,200 33,300

41,100 37,865 35,725

Order3,000kg,atadiscountpriceof1.85perkg,sixtimesperyear

[W1]Averagestock=orderquantity+safetystock

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