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    Solutions Manual: Raw Material and Store Organization

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    Ned Neddy Neddie
    The document provides solutions to questions about raw material and store organization. It defines key terms involved in the purchasing process like requisition forms, purchase orders, and invoices. It also describes calculating economic order quantity, determining stock levels, turnover ratio, and using LIFO and FIFO inventory costing methods. The questions cover topics like the purchasing process, objectives of store organization, calculating reorder levels and average stock levels.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Solutions Manual: Raw Material and Store Organization

    Uploaded by

    Ned Neddy Neddie
    50 views5 pages
    The document provides solutions to questions about raw material and store organization. It defines key terms involved in the purchasing process like requisition forms, purchase orders, and invoices. It also describes calculating economic order quantity, determining stock levels, turnover ratio, and using LIFO and FIFO inventory costing methods. The questions cover topics like the purchasing process, objectives of store organization, calculating reorder levels and average stock levels.

    Original Title

    Cost&Mgmt_SM_Ch3

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    The document provides solutions to questions about raw material and store organization. It defines key terms involved in the purchasing process like requisition forms, purchase orders, and invoices. It also describes calculating economic order quantity, determining stock levels, turnover ratio, and using LIFO and FIFO inventory costing methods. The questions cover topics like the purchasing process, objectives of store organization, calculating reorder levels and average stock levels.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    50 views5 pages

    Solutions Manual: Raw Material and Store Organization

    Uploaded by

    Ned Neddy Neddie
    The document provides solutions to questions about raw material and store organization. It defines key terms involved in the purchasing process like requisition forms, purchase orders, and invoices. It also describes calculating economic order quantity, determining stock levels, turnover ratio, and using LIFO and FIFO inventory costing methods. The questions cover topics like the purchasing process, objectives of store organization, calculating reorder levels and average stock levels.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 5

    SOLUTIONS MANUAL

    CHAPTER

    3
    Raw Material and
    Store Organization

    Question 1
    Types of documents involved in a purchasing procedure:
    (a) Material requisition form
    (b) Purchase requisition note
    (c) Supplier quotation
    (d) Purchase order
    (e) Delivery order
    (f) Supplier invoice
    (g) Goods received notes
    (h) Inspection note

    Question 2
    The process of purchasing:
    (a) Request of material:
    (i) The production department requests material by sending a material requisition form to the
    store department.
    (ii) If the materials are not available, the store will issue a Purchase requisition note to the
    purchasing department.

    (b) Order of material


    (iii) The purchasing department will search for a quotation from supplier.
    (iv) Purchase order will be sent to supplier after deciding on supplier.
    (v) Supplier will send materials ordered together with a delivery order.
    (vi) Supplier will send an invoice to the finance department for payment.

    Question 3
    Five objectives:
    (a) Speedy receipt and issue of materials
    (b) Immediate and exact location of all materials at all time
    (c) Maintain the correct level of stock
    (d) Keep up-to-date records of receipts, issues and stock levels
    (e) Provide suitable storage conditions and security to safeguard materials
    Solutions Manual
    2

    Question 4
    Economic Order Quantity (EOQ)
    2CoD
    EOQ =
    Cs
    2 × 2 × (12,000)
    =
    0.24 × 5
    = 200 units

    Question 5
    (a) Economic Order Quantity (EOQ)
    2 × 2 × (1800)
    EOQ =
    0.25(0.32)
    = 300 units

    (b) Stock level:


    (i) Reorder level
    Maximum usage × maximum reorder period
    = 300 × 4 months
    = 1,200 units

    (ii) Maximum stock level


    Reorder level + EOQ – (minimum usage × minimum reorder period)
    = 1,200 units + 300 units – (50 units × 2 months)
    = 1,500 units – 100 units
    = 1,400 units

    (iii) Minimum stock level


    Reorder level – (average usage × average reorder period)
    = 1,200 units – (300 units + 50 units) ÷2 × (3 months)
    = 1,200 units – (175 × 3)
    = 675 units

    (iv) Average stock level


    1
    = (maximum stock level + minimum stock level)
    2
    1
    = (1,400 units + 675 units)
    2
    = 1038 units

    Question 6
    (a) Reorder level
    Maximum usage × maximum reorder period
    = 4,000 × 6 months
    = 24,000 units
    Raw Material and Store Organization
    3

    (b) Maximum stock level


    Reorder level + EOQ – (minimum usage × minimum reorder period)
    = 24,000 units + 5000 units – (4,000 units × 4 months)
    = 29,000 units – 16,000 units
    = 13,000 units

    (c) Minimum stock level


    Reorder level – (average usage × average reorder period)
    = 24,000 units – (2,000 units + 4,000 units) ÷ 2 × (4 months + 6 months) ÷ 2
    = 24,000 units – (3,000 × 5)
    = 9,000 units

    (d) Average stock level


    1
    = (maximum stock level + minimum stock level)
    2
    1
    = (13,000 units + 9,000 units)
    2
    = 11,000 units

    Question 7
    (a) Reorder level
    Maximum usage × maximum reorder period
    = 140 × 22 days
    = 3,080 units

    (b) Minimum stock level


    Reorder level – (average usage × average reorder period)
    = 3,080 units – (120 units) × (16 days + 22 days) ÷ 2
    = 3,080 units – (120 × 19)
    = 800 units
    (c) Maximum stock level
    Reorder level + EOQ – (minimum usage × minimum reorder period)
    = 3,080 units + 930 units – (90 units × 16 days)
    = 4,010 units – 1,440 units
    = 2,570 units
    2(600 × 48 weeks)(30)
    **EOQ =
    2
    = 930 units

    Question 8
    (a) Stock turnover ratio
    (opening stock + closing stock)
    Average stock =
    2
    (100,000 + 60,000)
    =
    2
    = 80,000
    Solutions Manual
    4
    400,000
    Stock turnover ratio =
    80,000
    =5

    (b) Stock turnover in a year


    365 days
    = 73 days
    5
    Stock is turned over five times a year or once every 73 days.

    Question 9
    Receipts Issues Balance
    Date
    Q P A Q P A Q P A
    3,000 1.60 4,800
    January 1,500 1.60 2,400  1,500   1.60  2,400
    February 10,000 1.20 12,000 1,500 1.60 2,400
    10,000 1.20 12,000
    11,500   1.25 14,400
    March 8,000 1.25 10,017 3,500 1.25 4,383
    April 15,000 1.40 21,000 3,500 1.25 4,383
    15,000 1.40 21,000
    18,500   1.37 25,383
    May 6,500 1.20 7,800 18,500 1.37 25,383
    6,500 1.20 7,800
    25,000 1.32732 33,183
    June 22,000 1.32732 29,201 3,000 1.32732 3,982
    Closing stock  3,000 1.32732  3,982

    Question 10 (a)
    (a) Last In First Out (LIFO) method

    Receipts Issues Balance


    Date
    Q P A Q P A Q P A
    01/01 8,500 0.4 3,400
    03/01 8,400 0.35 2,940 8,500 0.4 3,400
    8,400 0.35 2,940
    05/01 8,400 0.35 2,940 1,900 0.4 760
    6,600 0.40 2,640
    08/01 7,500 0.38 2,850 1,900 0.4 760
    7,500 0.38 2,850
    Raw Material and Store Organization
    5

    Receipts Issues Balance


    Date
    Q P A Q P A Q P A
    15/01 3,600 0.38 1,368 1,900 0.4 760
    3,900 0.38 1,482
    20/01 3,900 0.38 1,482 1,120 0.4 448
    780 0.4 312
    28/01 1500 0.42 630 1,120 0.4 448
    1500 0.42 630

    (b) First In First Out (FIFO) method

    Receipts Issues Balance


    Date
    Q P A Q P A Q P A
    01/01 8,500 0.4 3,400
    03/01 8,400 0.35 2,940 8,500 0.4 3,400
    8,400 0.35 2,940
    05/01 8,500 0.4 3,400 1,900 0.35 665
    6,500 0.35 2,275
    08/01 7,500 0.38 2,850 1,900 0.35 665
    7,500 0.38 2,850
    15/01 1,900 0.35 665 5,800 0.38 2,204
    1,700 0.38 646
    20/01 4,680 0.38 1,778.40 1,120 0.38 425.60

    28/01 1,500 0.42 630 1,120 0.38 425.60


    1,500 0.42 630
    Too many stock level questions. Question 8 can be replaced with a stores turnover question

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