material cost

Management Accounting F2

Material cost

Class practice question

1 Which of the following is not a stockholding cost:

A The opportunity cost of capital tied upB The cost of insuranceC Shipping and handling costsD Stock obsolescence

2 The objective of holding buffer inventory is to take advantage of quantity discounts.

Is this statement TRUE or FALSE? A TrueB False

3 A company wishes to minimize its inventory costs. Order costs are $10 per order and holding cost is $0.10 per unit. Fall Co estimates annual demand to be 5,400 units.

The economic order quantity is_______ units.

4 The demand for a product is 12,500 units for a three month period. Each unit of product has a purchase price of $15 and ordering costs are $20 per order placed.The annual holding cost of one unit of product is 10% of its purchase price.

What is the Economic Order Quantity (to the nearest unit)?A 577B 816C 866D 1,155

5 A manufacturer uses 100,000 components costing $1each at a constant rate throughout the year. The cost of making a single order for more components is $10 and the holding costs for each component are 0.5% of the average inventory value.

What is the EOQ?A 1,411B 14,142C 20,000

Prepared by: Muzzammil Malik 1


6 Moura uses the economic order quantity formula (EOQ) to establish its optimal reorder quantity for its single raw material. The following data relates to the stock costs

Purchase price: £15 per itemCarriage costs: £50 per orderOrdering costs: £5 per order

Storage costs: 10% of purchase price plus £0·20 per unit per annumAnnual demand is 4,000 units.

What is the EOQ to the nearest whole unit?Units__________

7 A company determines its order quantity for a raw material by using the Economic Order Quantity (EOQ) model.

What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a batch of raw material?

EOQ Total annual holding cost

A Higher LowerB Higher HigherC Lower HigherD Lower Lower

8 A company determines its order quantity for a component using the Economic Order Quantity (EOQ) model.

What would be the effects on the EOQ and the total annual ordering cost of an increase in the annual cost of holding one unit of the component in stock?

EOQ Total annual ordering cost ________ _________

9 A company uses 1,000 units of a component per month. The cost of placing an order is £160. EOQ is 980 units.

Calculate holding cost/unit.

10 The purchase price of a stock item is £25 per unit. In each three month period the usage of the item is 20,000 units. The annual holding costs associated with one unit equate to 6% of its purchase price. The EOQ 730

What is the cost/order?$_______



11 A retailer has a steady demand for rugby balls at 50 a month. Each ball costs $6 from the supplier. The costs involved in placing an order are $10 and the stockholding costs are 20% of the stockholding value per annum.

How many orders will be placed per annum?A 1.73B 6C 8.48D 100

12 Point Ltd uses the economic order quantity (EOQ) model to establish the reorder quantity for raw material Y. The company holds no buffer stock. Information relating to raw material Y is as follows:

Annual usage 48,000 unitsPurchase price £80 per unitOrdering costs £120 per orderAnnual holding costs 10% of the purchase price. Calculate:(a) The EOQ.(b) The total annual cost of purchasing, ordering and holding stocks of raw material Y.

13 A company uses the Economic Order Quantity (EOQ) model to establish reorder quantities. The following information relates to the forthcoming period:

Order cost = £25 per orderHolding costs = 10% of purchase price = £4/unitAnnual demand = 20,000 unitsNo safety stocks are held.

What are the total annual costs of stock (i.e. the total purchase cost plus total order cost plus total holding cost)?$_______

14 A business currently orders 1,000 units of product X at a time. It has decided that it may be better to use the Economic Order Quantity method to establish an optimal reorder quantity.

Information regarding stocks is given below:

Purchase price £15/unitFixed cost per order £200Holding cost 8% of the purchase price per annumAnnual demand 12,000 unitsCurrent annual total stock costs are £183,000, being the total of the purchasing, ordering and holding costs of product X.

Required:(a) Calculate the Economic Order Quantity. (b) Using your answer to (a) above calculate the revised annual total stock costs for product X.(c) Calculate saving / additional cost if EOQ used .



15 Point Ltd uses the economic order quantity (EOQ) model to establish the reorder quantity for raw material Y. The company holds no buffer stock. Information relating to raw material Y is as follows:

Annual usage 72,000 unitsPurchase price £40 per unitOrdering costs £100 per orderAnnual holding costs 10% of the purchase price. Calculate:(a) The EOQ.

(b) The total annual cost of purchasing, ordering and holding stocks of raw material Y.

The supplier has offered Point Ltd a discount of 1% on the purchase price if each order placed is for 2,500 units.

(c) Calculate the total annual saving to Point Ltd of accepting this offer.

16 What is the economic batch quantity used to establish?

A reorder quantityB recorder levelC cumulative production quantityD inventory level for production

17 Motto Ltd manufacturers component RT in batches. Motto can produce 100,000 units in a year but the sales demand of the component is 25,000 units. The cost of setting a batch production run is $50 and the holding cost /unit is $2.5/year

What is EBQ of this component (in units?)

18 SPA Ltd calculated that economic batch quantity is 2,000 units. SPA capable to produce 100,000 units/year but the demand of the product is 20,000 units. Holding cost /unit is $2

Calculate cost /setup.

19 Data relating to a particular stores item are as follows:

Average daily usage 400 unitsMaximum daily usage 520 unitsMinimum daily usage 180 unitsLead time for replenishment of stock 10 to 15 daysReorder quantity 8,000 units

What is the reorder level (in units) which avoids stock outs?Units_________



20 Data relating to one particular stores item are as follows:

Average daily issues 70 unitsMaximum daily issues 90 unitsMinimum daily issues 50 unitsLead time for the replenishment of stock 11 to 17 daysReorder quantity 2,000 unitsReorder level 1,800 units

What is the maximum stock level (in units) for this stores item?

________ units

The following information relates to questions 21 and 22

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

Average sales 75 per dayMaximum sales 95 per dayMinimum sales 50 per dayLead time 12-18 daysReorder quantity 1,750

21 Based on the data above, at what level of inventory would a replenishment order be issued?

_______units

22 Based on the data above, what is the maximum inventory level?

_______units

23 Data relating to a particular stores item are as follows:

Average daily usage 400 unitsMaximum daily usage 520 unitsMinimum daily usage 180 unitsLead time for replenishment of inventory 10 to 15 daysAverage lead time 13 daysReorder quantity 8,000 units

What is the reorder minimum inventory level?

________units



24 A manufacturing company uses 25,000 components at an even rate during a year. Each order placed with the supplier of the components is for 2,000 components, which is the economic order quantity. The company holds a buffer inventory of 500 components. The annual cost of holding one component in inventory is $2.

What is the total annual cost of holding inventory of the component?

A $2,000B $2,500C $3,000D $4,000

25 Which of the following is correct with regard to inventories?

(i) Stock-outs arise when too little inventory is held(ii) Safety inventories are the level of units maintained in case there is unexpected demand(iii) A re-order level can be established by looking at the maximum usage and the maximum lead-time

A (i) and (ii) onlyB (i) and (iii) onlyC (ii) and (iii) onlyD (i), (ii) and (iii)

26 There are 27,500 units of Part Number X35 on order with the suppliers and 16,250 units outstanding on existing customers' orders.

If the free inventory is 13,000 units, what is the physical inventory?

A 1,750B 3,250C 24,250D 29,250

27 The following represent the materials transactions for acompany for a year: $'000Materials purchases 240Issued to production 215Materials written off 12Returned to stores 6Returned to suppliers 2

The material stock at 31 December 20X1 was $42,000.

What was the opening balance on the materials inventory accountat 1 January 20X1?

$_________


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material cost