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The document provides information on stockholding and ordering costs, including: 1) A company uses 500 components per month at $1.20 each. It costs $20 per order regardless of quantity. Total holding cost is 20% annually of inventory value. 2) Information is given on two stock items for a company, including purchase price, order costs, demand, and annual holding costs. Calculations are required to determine optimal order quantities. 3) Details are provided on electronics components purchased annually by a company. Calculations are needed to determine if a quantity discount benefits the company. The document asks questions related to determining optimal order quantities, annual costs, order sizes, and quantity discounts. Calculations

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112 views3 pages

Tutorial Questions

The document provides information on stockholding and ordering costs, including: 1) A company uses 500 components per month at $1.20 each. It costs $20 per order regardless of quantity. Total holding cost is 20% annually of inventory value. 2) Information is given on two stock items for a company, including purchase price, order costs, demand, and annual holding costs. Calculations are required to determine optimal order quantities. 3) Details are provided on electronics components purchased annually by a company. Calculations are needed to determine if a quantity discount benefits the company. The document asks questions related to determining optimal order quantities, annual costs, order sizes, and quantity discounts. Calculations

Uploaded by

Nyarko Maxwell Gyarteng
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Stockholding and Ordering Cost

Q1. A company uses components at the rate of 500 units per month, which are
bought in at a cost of $1.20 each from the supplier. It costs $20 each time to
place an order, regardless of the quantity ordered. The total holding cost is 20%
per annum of the value of inventory held.

a. How many components should the company order?

b. The total annual cost will be?

Q2. Leran Ltd’s chief executive believes the company is holding excessive
stocks and has asked for the management accountant to carry out an
investigation. Information on the two stock items is given below:

Purchase Administration Holding cost


Stock Price Cost Demand per year % of
Item $ per unit $ per order Units purchase price
3000 per
M 400 160 yr 26.66
5600 per
N 50 56 yr 16

The company’s stock ordering policy is based on the economic order quantity
(EOQ).
Required:

(i) Determine the number of orders per year that the company will place for
item M.
(ii) Determine the annual holding cost of the stock of item G.

Q3. Leran further manufactures a range of electronic products. The supplier of


the electronics has informed Leran that it will offer a quantity discount of 1.0
per cent if they place an order of 10 000 components or more at any one time.
Details of components are as follows:
Cost per component before discount $2.00
Annual purchases 150 000
components
Ordering costs $360 per order
Holding costs $3.00 per
component
per annum

Determine whether there is a financial benefit to BB from increasing the order


size to 10 000 components in order to qualify for the 1.0 per cent quantity
discount and advice management on which decision to take.

Q5.Nkunim Ltd is a retailer of beer barrels. The company has an annual demand
of 36,750 barrels. The barrels cost $12 each. Fresh supplies can be obtained
immediately, but ordering costs and the cost of carriage inwards are $200 per
order. The annual cost of holding one barrel in inventory is estimated to be
$1.20. The economic order quantity has been calculated to be 3,500 barrels.
The suppliers introduce a quantity discount of 2% on orders of at least 5,000
barrels and 2.5% on orders of at least 7,500 barrels.

Determine whether the least-cost order quantity is still the EOQ of 3,500
barrels.

Stock Valuation
Q1.M Ltd had the following material transactions during the first week in
March.
Quantity Unit cost
(Units) $
Opening balance 1st March 10 2.00
Receipts 2nd March 70 2.20
Issues 3rd March 40
Receipts 4th March 50 2.30
Issues 5th March 70

Q2. Basic: Stores pricing. Z Ltd had the following transactions in one of its raw
materials during April:
Opening stock 40 units @￡10 each
April 4 Bought 140 units @￡11 each
10 Used 90 units
12 Bought 60 units @￡12 each
13 Used 100 units
16 Bought 200 units @￡10 each
21 Used 70 units
23 Used 80 units
26 Bought 50 units @￡12 each
29 Used 60 units
You are required to:
(a) Write up the stores ledger card using
(I) FIFO and
(II) LIFO
(III)AVCO methods of stock valuation

Stock Levels

Q1.A domestic appliance retailer with multiple outlets stocks a popular toaster known as the
Autocrisp 2000, for which the following information is available:

Average sales 75 per day


Maximum sales 95 per day
Minimum sales 50 per day
Lead time 12–18 days
Re-order quantity 1750
Based on the data above, at what level of stocks would a replenishment order be issued?
what is the maximum level of stock?
what is the maximum level of stock ?

Q2.
From the following information, calculate

Minimum stock level, maximum stock level and re-order level:

Maximum consumption 200 units per day


Minimum consumption 120 units per day
Normal Consumption 160 units per day
Re-order period 10-15 days
Re-order quantity 1600units

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