Box AF 2340, Adenta Accra
info@passquo.com

No products in the cart.

No products in the cart.

Register

Inventory control
Home Level 2 2.2 Management Accounting Archive by Category "Inventory control"

Category: Inventory control

2.2 Management AccountingInventory controlLevel 2

Nov 2018 Q3 a.

The quarterly demand for an item of raw materials is estimated at 2,000 units at a purchase price of GH¢180 per unit. It is estimated that the cost per order will be GH¢270 and the cost of holding a unit of material in inventory will be GH¢24.
Required:
i) Compute the optimal order quantity, and total minimum costs.                                                                                                          (4 marks)

View Solution

ii) Suppose a supplier offers 5% quantity discount for purchase of 8,000 units, should the offer be accepted?                                    (3 marks)

View Solution

Total cost with discount; purchase cost 8,000 @ 171= 1,368,000.
Ordering cost = 8000÷8000 ×270= 270
Holding cost = 8000÷2×24 = 96,000
The decision should be reject offer.

View More
2.2 Management AccountingInventory controlLevel 2

May 2016 Q4 a&b

a) Material X is a key raw material of XOXO Ltd. The store keeper is interested in knowing the units they have placed on order because the supporting documents have been destroyed by fire. She is able to provide that immediately before the fire: materials in inventory were 1,250; materials requested by factory but yet to be supplied issued were 375 whilst inventory balance was 3,255. What is the amount of material X that XOXO has ordered from its suppliers?                                                      (2 marks)

View Solution

Free Inventory = Material in inventory + Material on order – Material requested but not yet issued
3,255units = 1,250units + Material on order – 375units
Materials on order = 3,255units – 1,250units + 375units
.                              = 2,380units

b) MM Company Ltd., a manufacturer of groundnut paste, wishes to know whether it is advisable to stick to its economic orders or accept a special order from a foreign supplier for the supply of groundnuts. The following information has been provided:
Purchase price per bag of groundnut                                    GH¢360
Holding cost per annum is 10% of the cost of a bag of ground nut
Ordering cost per annum                                                      GH¢7.7
Annual Demand of groundnut paste                                    6,000
Normal usage per month                                                      520 bags
Minimum Usage per month                                                 500 bags
Maximum usage                                                                   700bags

Required:
i) The foreign supplier promises a reduction in the price of a bag of groundnut by 8% if MM Company is willing to order 3000units each time it wants to order. Advise MM.                                                                                                          (10 marks)

View Solution

Total Material Cost Using EOQ as orders
Total Cost   = Purchase Cost + Ordering Cost + Holding Cost
.                   = (520 x 12 x 360) + (6,240/52 x 7.7) + (52/2 x 10% x 360)
.                   = 2,246,400 + 924 + 936
.                   = GHS2,248,260.00

Total Material Cost if Foreign Suppliers offer is accepted.
Total Cost  = Purchase Cost + Ordering Cost + Holding Cost
.                  = (6,240 x 92% x 360) + (6,240/3,000 x 7.7) + (3,000/2 x 92% x 10% x 360)
.                  = 2,066,688 + 16.02 + 49,680
.                  = GHS2,116,384.02

Decision
It is advisable to accept the order from the foreign supplier because GHS131,875.98 (GHS2,248,260.00 – GHS2,116,384.02) would be saved.

ii) What is the difference between a bin card and a store ledger card?                                                                              (3 marks)

View Solution

A bin card shows the level of inventory of an item at a particular store location. It shows the receipts and issues of inventory without valuation and is normally kept by the store keeper. But a store ledger account, which is normally prepared by the cost accountant, shows the issue, receipts and balances of items and their valuations.

 

View More
2.2 Management AccountingInventory controlLevel 2

Nov 2015 Q4

a) What are the two most relevant costs for determining the Economic Order Quantity? Give THREE (3) specific examples in each case.                                                                                                                                                                            (6 marks)

View Solution

The relevant cost for determining the EOQ are the holding cost and the ordering cost.
The Holding cost includes:
i. -opportunity cost of investment in stock
ii. -incremental insurance cost.
iii. -incremental warehouse and storage cost
iv. -incremental material handling cost.
v. -cost of obsolescence and deterioration of stock.
The ordering cost includes:
i. -Clerical cost of preparing purchase order purchase order
ii. -Receiving deliveries
iii. -paying invoices

b) Examine the THREE (3) motives for Holding stocks.                                                                                                  (3 marks)

View Solution

Transaction motive – this occurs whenever there is a need to hold stocks to meet production and sales requirement and that it is not possible to meet this requirement instantaneously.

The precautionary motive – If a firm decides to hold an additional amount of stock to cover the possibility that it may have underestimated its future production and sales requirement or when the supply of raw materials may be unreliable because of uncertain event affecting the supply of raw materials this is called precautionary motive for requiring stock.

Speculative motive – When it is expected that future inputs prices may change, a firm might maintain higher or lower levels of stock to speculate on the expected increase or decrease in future prices. Quantitative models does not take into consideration the speculative motives, but management should be aware that optimum stock levels do depend to a certain extent on expected price movement. If input prices is expected to rice then management should stock to take advantage of input price savings.

c) Explain Economic Order Quantity and discuss TWO (2) of its relevance.                                                                    (3 marks)

View Solution

Economic order quantity – this is the ordering quantity where total cost of holding and ordering cost is at its minimum. It is the most economical quantity to order in order to minimize both incremental holding cost and ordering cost.
Relevance of Economic Order Quantity

  • It is relevant in the sense that it is the optimal quantity that ensure optimal use of resources.
  • It is also relevant because it will assist to ensure that there will be minimal occurrence of stock out and excessive holding of stock with its associated consequence like inability to satisfy customers, deterioration and high rate of losses due to overstocking.

d) Quaku Manu limited purchases and sells CDS. The company has been experiencing stock shortages and excess stocks at certain times in the year. The manager is concerned about the impact of overstocking and understocking and is therefore requesting you to assist in determining the most Economic quantity of CDS to order.
He has made the following information available to you to enable you recommend an appropriate stock to order and hold.
                                                                                                                       GHC
Sales per annum                                                                                        20,000,000
Units of items sold 200,000 units
Mark up on cost of purchases is 25% of purchase price
The ordering cost is GHS200 per order whilst holding cost per unit is 5% of unit price.

Required:
i) Determine the economic order quantity.                                                                                                        (2 marks)

View Solution

ii) What is the annual ordering cost?                                                                                                               (2 marks)

View Solution

ANNUAL ORDERING COST = 200,000/EOQ X 200 = GHC8,945
200,000/ 4,472 X 200 = GHC 8,945

iii) Determine the annual holding cost.                                                                                                           (2 marks)

View Solution

EOQ/2 X HOLDING COST PER UNIT = 4,472/2 X 4 = 8,945

iv) How many times in a year will the company order for goods?                                                                  (1 mark)

View Solution

Annual demand / EOQ
200,000/ 4472 = APPROX 45 times

v) What is the purchase value per order quantity?                                                                                           (1 mark)

View Solution

EOQ X PURCHASE PRICE
4472 X 80 = GHC 357,760

View More