Ranjan saha’s coaching centRe 1

Materials
Economic Ordering Quantity
1. The average annual consumption of a material is 20,000 kg. at a price of Rs. 2 per kg. The storage
cost is 16% on average inventory and the cost of placing one order is Rs. 50. How much is to be
purchased at a time. [Ans. 2,500 kg.]

2. The annual demand for an item is 3,200 units. The unit cost is Rs. 6 and inventory carrying charges
are 25% per annum.
If the cost of one procurement is Rs. 150, determine:
(a) Economic order quantity;
(b) No. of orders per year;
(c) Time between two consecutive orders. [Ans. (a) 800 units; (b) 4 orders; (c) 3 months]

3. From the following particulars relating to inventory find out:

(a) How much should be ordered each time,
(b) When should the order be placed,
(c) What should be the ideal inventory level immediately before the delivery of material ordered is
received, and
(d) How many times orders for EOQ should be placed in a year?
Annual Consumption 12,000 units (in 360 days)
Cost per unit Re. 1.00
Ordering Cost Rs. 12 per order
Inventory Carrying Charges 20% p.a.
Normal Lead Time 15 days
Safety Stock 30 days consumption.
[Ans. (a) 1,200 units; (b) 1,500 units; (c) 1,000 units; (d) 10 times]

4. Suman Ltd. buys in lots of 500 boxes which is a 3 months’ supply. The cost per box is Rs. 125 and
the ordering cost is Rs. 150 per order. The inventory carrying cost is estimated at 20% of unit value
per annum. Find out:
(a) What is the total annual cost of the existing inventory policy?
(b) How much money would be saved by employing the economic order quantity?
[Ans. (a) Rs. 6,850; (b) EOQ 155 units, Total Cost Rs. 3,887, Saving Rs. 2,962.5]

5. Your factory buys and uses a component for production at Rs. 10 per piece. Annual requirement is
2,000 pieces. Carrying cost of inventory is 10% per annum and ordering cost is Rs. 40 per order.
The purchase manager proposes that as the ordering cost is very high, it is advantageous to place a
single order for the entire annual requirement. He also says that if we order 2,000 pieces at a time,
we can get a 3% discount from the supplier.
You are required to evaluate this proposal and make your recommendation.
[Ans. EOQ: 400 units; Total Annual Cost without discount offer (excluding item cost) Rs. 400;
Total cost with discount offer (excluding item cost) Rs. 410. Therefore, the offer should not be
accepted]

6. C Ltd. produces a product which has a monthly demand of 4,000 units. The product requires a
component X which is purchased at Rs, 20, For every finished product, one unit of component is
required. The ordering cost is Rs, 120 per order and the holding cost is 10% p.a.
You are required to calculate:
(a) Economic order quantity,
(b) If the minimum lot size to be supplied is 4,000 units, what is the extra cost the company has to
incur?
(c) What is the minimum carrying cost, the company has to incur?
[Ans. (a) 2,400 units, (b) Rs. 640; (c) Rs. 2,400]

7. NKR Ltd., manufacturers of a special product, follows the policy of EOQ (Economic Order
Quantity) for one of its components. The component's details are as follows:
Purchase price per component Rs. 200

p-129, c. i. t. road. Kol-10. Cell-9433100121.

 Ranjan saha’s coaching centRe 2
Cost of an order Rs. 100
Annual cost of carrying one unit in inventory 10% of purchase price
Total cost of carrying inventory and ordering per annum Rs. 4,000
The company has been offered a discount of 2% on the price of the component provided the lot size
is 2,000 components at a time.
You are required to:
(a) Compute the EOQ;
(b) Advise whether the quantity discount offer can be accepted (assume that the inventory carrying
cost does not vary according to discount policy);
(c) Would your advice differ if the company is offered 5% discount on a single order?
[Ans. (a) 200 units; (b) The offer should not be accepted as total annual inventory cost will
increase by Rs. 200]

8. A purchase manager places order for his organisation, each time for a lot of 500 kg. of raw material.
From the following information, find out the amount of profit or loss of the organisation for the said
order:
Annual consumption 1,000 kg. Ordering cost per order Rs. 400
Cost per kg. of Raw Materials Rs. 100 Inventory carrying cost 20%
[Ans. Loss Rs. 1,800]

9. A factory requires 1,500 units of an item per month, each costing Rs. 27. The cost per order is Rs.
150 and the inventory carrying charges work out to 20% of the average inventory.
Find out the economic order quantity and the number of orders per year.
Would you accept a 2% price discount on a minimum supply quantity of 1,200 units? Compare the
total costs in both the cases.
[Ans. EOQ 1,000 units; 18 order; Total Cost without discount Rs. 4,91,400; Total cost with
discount Rs. 4,81,705.20. Hence the offer is acceptable]

10. The following, relating to inventory costs, have been established for a company:
(a) Orders must be placed in multiples of 100 units;
(b) Requirements for the year are 3,00,000 units;
(c) The purchase price per unit is Rs. 3;
(d) Carrying cost is 25 per cent of the purchase price of goods;
(e) Cost per order placed is Rs. 20;
(f) Desired safety stock is 10,000 units; and
(g) Three days are required for delivery.
Calculate:
(1) Economic Ordering Quantity.
(2) How many orders should the company place each year? and
(3) At what inventory level should an order be placed? (Assume 360 days a year)
[Ans. (i) 4,000 units; (ii) 75 orders; (iii) 12,500 units]

11. Sachin Ltd. furnishes the following information:

(a) Consumption 300 units per quarter. (d) Obsolescense 15%.
(b) Cost per unit Rs. 40. (e) Insurance on inventory 25%.
(c) Cost of processing an order Rs. 600.
(1) Compute: (i) Economic order quantity; (ii) No. of orders per year; and (iii) Time between two
consecutive orders.
(2) A supplier offers a discount of 2% on a purchase of 600 units. Should it be accepted?
[Ans. (1) (i) 300 units; (ii) 4; (iii) 3 months; (2) Total Cost without discount Rs. 52,800 and
with discount Rs. 52,944. Hence the offer should not be acceptable]

12. The purchase department of your organisation has received an offer of quantity discounts on its
orders of materials as under:
Ordering Quantity (in tons.) Price per ton.
Less than 500 (Rs.)
500 and less than 1,000 1,400

p-129, c. i. t. road. Kol-10. Cell-9433100121.

 Ranjan saha’s coaching centRe 3
1,000 and less than 2,000 1,380
2,000 and less than 3,000 1,360
3,000 and above 1,340
1,320
The annual requirement of the material is 5,000 tons. The delivery cost per order is Rs. 1,200 and
the annual stock holding cost is estimated at 20% of the average inventory.
The purchase department wants you to consider the following purchase options and advise which
among them will be the most economical ordering quantity, presenting the relevant information in a
tabular form.
The purchase quantity options to be considered are 400 tons, 500 tons, 1,000 tons, 2,000 tons and
3,000 tons. [Ans. 1,000 tons]

13. In a factory component A is used as follows:

Normal usage 50 kg. per week Re-order quantity 300 kg.
Minimum usage 25 kg. per week Re-order period 4 to 6 weeks
Maximum usage 75 kg. per week
Calculate for component A:
(a) Re-order level; (b) Maximum level; (c) Minimum level; and (d) Average stock level.
[Ans. (a) 450 units; (b) 650 units; (c) 200 units; (d) 425 units]

14. From the following particulars compute:

(a) Re-order level; (b) Re-order quantity; (c) Average stock level; and (d) Maximum re-order
period.
Normal usage 100 units per day Minimum level 1,400 units
Minimum usage 60 units per day Maximum level 7,800 units
Maximum usage 130 units per day Re-order period Normal: 25 days; Minimum: 20 days
[Ans. (a) 3,900 units; (b) 5,100 units; (c) 4,600 units; (d) 30 days]

15. KT Ltd. provides you the following information:

(a) Re-order level 64,000 units (e) Average lead time in the past 2.5 days
(b) Re-order quantity 40,000 units (f) The difference between maximum
(c) Minimum stock level 34,000 units and minimum lead time 3 days
(d) Maximum stock level 94,000 units
Determine the maximum and minimum usage rates and lead times.
[Ans. Max. Usage 16,000 units; Min. usage 10,000 units; Max. Lead Time 4 days; Min. Lead
Time 1 day]

16. Shown below are the consumption figures forecast for X Ltd. in respect of Material 492. You are
required to calculate the estimated average stock level for the year.
Month Consumption (units) Month Consumption (units)
January 2,000 July 3,000
February 2,000 August 3,000
March 2,800 September 2,200
April 2,800 October 2,200
May 3,000 November 2,000
June 3,000 December 2,000
Re-order Quantity 8,000 units. Delivery period from suppliers: Minimum 2 months; Maximum 4
months.
[Ans. Re-ordering Level 12,000 units; Maximum Level 16,000 units; Minimum Level 4,500
units; Average Stock Level 10,250 units]

17. In manufacturing its products, a company uses three raw materials, A, B and C in respect of which
the following particulars are available:
Raw Usage Re-order Price Delivery period (week) Re-order Minimum
Material per unit Quantity Per Min. Av. Max. Level Level
(kg.) (kg.) kg. (kg.) (kg.)
A 10 10,000 10 1 2 3 8,000 –––

p-129, c. i. t. road. Kol-10. Cell-9433100121.

 Ranjan saha’s coaching centRe 4
B 4 5,000 30 3 4 5 4,750 –––
C 6 10,000 15 2 3 4 ––– 2,000
Weekly production varies from 175 to 225 units, average being 200 units. Calculate:
(a) Re-ordering Level of C; (c) Maximum Stock Level of B; and
(b) Minimum Stock Level of A; (d) Average Stock Level of A.
[Ans. (a) 5,400 kg.; (b) 4,000 kg.; (c) 7,650 kg. (d) 10,125 kg.]

18. Re-order quantity of material X is 5,000 kg.; maximum level 8,000 kg.; minimum usage 50 kg. per
hour; minimum re-order period 4 days; daily working hours in the factory is 8 hours. You are
required to calculate the re-order level of material X. [Ans. 4,600 kg.]

19. From the details given below, calculate:

(i) Re-ordering level; (ii) Maximum level; (iii) Minimum level; and (iv) Danger level.
Re-ordering quantity is to be calculated on the basis of following information:
Cost of placing a purchase order is Rs. 20.
Number of units to be purchased during the year is 5,000.
Purchase price per unit inclusive of transportation cost is Rs. 50.
Annual cost of storage per unit is Rs. 5.
Details of lead time: Average 10 days, Maximum 15 days, Minimum 6 days. For emergency
purchases 4 days.
Rate of consumption: Average 15 units per day, Maximum 20 units per day.
[Ans. (i) 300 units; (ii) 440 units; (iii) 150 units; (iv) 60 units; EOQ 200 units]

20. About 200 units are required per quarter. Rs. 100 per order is incurred for placing an order. The
inventory carrying cost per unit is Rs. 4. The re-order level is 350 units. The minimum usage is 25
units per week and the re-order periods is 4 to 6 weeks.
Compute: (a) Economic order quantity; and (b) Maximum level. [Ans. (a) 200 units; (b) 450 units]

21. About 50 items are required every day for a machine. A fixed cost of Rs. 50 per order is incurred
for placing an order. The inventory carrying cost per item amounts to Re. 0·02 per day. The lead
period is 32 days.
Compute: (a) Economic order quantity; and (b) Re-order level. [Ans. (a) 500 units; (b) 1,600 units]

22. PQR Ltd. produces a product which has a monthly demand of 52,000 units. The product requires a
component X which is purchased at Rs. 15 per unit. For every finished product, 2 units of
component X are required. The Ordering cost is Rs. 350 per order and the carrying cost is 12% p.a.
You are required to calculate:
(a) The Economic Order Quantity for component X.
(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?
[Ans. (a) 22,030 units; (b) Rs. 15,545; (c) Rs. 19,827]

23. ZEE is product manufactured out of 3 raw materials M, N and O. Each unit of ZEE requires 10 kg.,
8 kg. and 6 kg. of M, N and O respectively. The re-order levels of M and N are 15,000 kg. and
10,000 kg., while the minimum level of O is 250 kg.
The weekly production of ZEE varies from 300 – 500 units, while weekly average production is
400 units.
You are required to compute:
(a) Minimum Stock Level of M,
(b) Maximum Stock Level of N,
(c) Re-order Level of O.
The following additional data are given below:
M N O
Re-order Quantity (kg.) 20,000 15,000 20,000
Delivery (in week): Minimum 2 4 3
Average 3 5 4

p-129, c. i. t. road. Kol-10. Cell-9433100121.

 Ranjan saha’s coaching centRe 5
Maximum 4 6 5
[Ans. (a) 3,000 kg. (b) 15,400 kg. (c) 15,000 kg.]

24. From the following data for the year ending 31st March, 2011, compute:
(a) Cost of materials consumed; (b) Average inventory; and (c) Inventory turnover ratio.
Material A (Rs.) Material B (Rs.)
Opening stock 40,000 36,000
Purchases during the year 2,08,000 1,08,000
Closing stock 24,000 48,000
Which of the two items of inventory is fast moving?

25. Draw up priced stores ledger card from the following particulars, using LIFO method of valuation
of issues:
2016 Units Rate per unit (Rs.)
July 1 Opening balance 500 2.00
3 Issued 70
4 Issued 10
7 Received from supplier 200 2.10
9 Return from department from issue dated 3.7.16 20
10 Shortage found 10
13 Issued 70
14 Received from supplier 100 2.20
18 Issued 300
26 Received from supplier 50 2.00
30 Issued 60
[Ans. Issues: Rs. 140, Rs. 20, Rs. 21(shortage), Rs. 147, Rs. 632, Rs. 120. Closing Stock Rs. 700]

26. The particulars of receipts and issues of a material in a factory in August, 2016 are as under:
Aug. 1 Opening balance 1,500 kg. @ Rs. 12·00 per kg.
2 Issued 100 kg.
3 Issued 250 kg.
4 Issued 300 kg.
5 Received (purchase) 400 kg. @ Rs. 12.50 per kg.
9 Issued 300 kg.
10 Received (purchase) 200 kg.
11 Issued 300 kg.
12 Returned from workshop out of issues on 3rd Aug. 20 kg.
13 Issued 450 kg.
16 Received (purchase) 500 kg. @ Rs. 13·00 per kg.
18 Issued 400 kg.
20 Returned from workshop out of issues on 9th Aug. 60 kg.
22 Issued 300 kg.
26 Received (purchase) 400 kg. @ Rs. 12·00 per kg.
29 Issued 200 kg.
Pricing of issues is to be done on FIFO basis. A shortage of 10 kg. was noticed on 16th August.
Prepare the stores ledger account for the month of August, 2016 in respect of the material.
[Ans. Issues: Rs. 1,200, Rs. 3,000, Rs. 3,600, Rs. 3,600, Rs. 5,490, Rs. 125 (shortage), Rs. 5,000,
Rs. 3,835, Rs. 2,600. Closing Stock Rs. 5,710]

27. The following transactions took place in respect of Raw Material during the month of January,
2016:
Kg. Rate per kg. (Rs.)
January 1 Balance 1,000 9
2 Purchased 1,500 10
5 Issued 390
8 Shortage 10
15 Surplus returned by a production department 200 12

p-129, c. i. t. road. Kol-10. Cell-9433100121.

 Ranjan saha’s coaching centRe 6
20 Issued 1,000
25 Received from vendor 300 14
28 Issued 1,200
31 Issued 100
You are required to write up the Stores Ledger Account applying the simple average method of
pricing issues.
[Ans. Issues: Rs. 3,705, Rs. 95 (shortage), Rs. 10,330, Rs. 14,400, Rs. 1,300. Closing Stock Rs. 770]

28. The stock of materials of a company on 1.1.16 was 10,000 units at Rs. 2 per unit. Further purchases
were made during the month as follows:
January 4 2,000 units @ Rs. 2.50 per unit
10 5,000 units @ Rs. 3.00 per unit
20 10,000 units @ Rs. 3.50 per unit
Issues during the period were as follows:
January 12 16,000 units
28 9,000 units
What would be the value of the closing stock at the end of the month on the basis of materials being
treated to have been issued according to: (a) FIFO method; (b) Weighted Average method; (c)
LIFO method. [Ans. (a) Rs. 7,000; (b) Rs. 6,800; (c) Rs. 5,500]

29. The following is an extract of the record of receipts and issues of Sulphur in a chemical factory
during January, 2016:
Tons. Rate per ton (Rs.)
January 1 Opening balance 500 200
8 Issued 250
13 Received from supplier 200 190
16 Issued 180
20 Received from supplier 240 180
24 Issued 300
25 Received from supplier 320 190
28 Issued 200
29 Return from department 30 190
Issues are to be priced on the principle of first-in first-out. The stock verifier of the factory had
found a shortage of 10 tons on 22 January and left a note accordingly.
Draw up a priced stores ledger card for the material, showing the above transactions.
[Ans. Value of issues: Rs. 50,000, Rs. 36,000, Shortage Rs. 2,000, Rs. 57,200, Rs. 36,000. Value
of closing stock: 66,500]

30. The following transactions took place in respect of an item of material:

Date Receipts (Units) Rate (Rs.) Issue (Units)
02.3.16 200 2.00
10.3.16 300 2.40
15.3.16 250
18.3.16 250 2.60
20.3.16 200
Prepare a priced ledger sheet pricing the issues at: (a) Simple average rate; and (b) Weighted
average rate.
[Ans. Value of issues: (a) Rs. 550, Rs. 500; (b) Rs. 560, Rs. 484. Value of Closing Stock: (a) Rs.
720; (b) Rs. 726]

31. From the following details of stores receipts and issues of material 'M' in a manufacturing unit,
prepare the stores ledger using weighted average method of valuing the issues:
2016
April
1 Opening stock 2,000 units @ Rs. 5·00 each
3 Issued 1,500 units to production
4 Received 4,500 units @ Rs. 6·00 each
8 Issued 1,600 units to production
p-129, c. i. t. road. Kol-10. Cell-9433100121.
 Ranjan saha’s coaching centRe 7
9 Returned to stores 100 units by production department (from the issues of November, 3)
16 Received 2,400 units @ Rs. 6·50 each
19 Returned to supplier 200 units of the quantity received on November, 4
20 Received 1,000 units @ Rs. 7·00 each
24 Issued to production 2,100 units
27 Received 1,200 units @ Rs. 7·50 each
29 Issued to production 2,800 units. (Correct the rates up to two decimal places.)
[Ans. Issues: Rs. 7,500, Rs. 9,440, Rs. 13,146, Rs. 18,256. Return to Supplier Rs. 1,200. Closing
Stock Rs. 19,558]

32. From the following information select the most suitable method of pricing material issues and write
up a Stores Ledger Card based on the method:
Qty. Rate per ton
(kg.) (Rs.)
1.1.16 Opening Balance 24,000 7,500
1.1.16 Purchased 44,000 7,600
3.1.16 Issued 10,000
5.1.16 Issued 16,000
12.1.16 Purchased 10,000 7,800
13.1.16 Issued 24,000
18.1.16 Issued 25,000
22.1.16 Purchased 50,000 8,000
28.1.16 Issued 20,000
31.1.16 Issued 22,000
On the 24th January, 2016 a shortage of 200 kg. was noticed in stock-taking.
[Ans. LIFO: Issues: Rs. 76,000, Rs. 1,21,600, Rs. 1,84,400, Rs. 1,87,900, Rs. 1,60,000, Rs. 1,600
(shortage) Rs. 1,76,000. Closing stock Rs. 84,900]

p-129, c. i. t. road. Kol-10. Cell-9433100121.