No.

1 for CA/CWA & MEC/CEC MASTER MINDS

2. MATERIALS
SOLUTIONS TO ASSIGNMENT PROBLEMS
Problem No. 1
2 AS
EOQ =
C
A = Units consumed during year
S = Ordering cost per order
C = Inventory carrying cost per unit per annum.
2 X 10,000 X 50
EOQ =
2 X8
100
2 X 10,000 X 50 X 25
EOQ = = 2,500 kg.
4
Total consumptio n of materials per annum
No. of orders to be placed in a year =
EOQ
10,000 kg.
=
2,500 kg.
= 4 Orders per year

Problem No. 2
a) Total Annual Cost in Existing Inventory Policy
( `)
Ordering cost (6 orders @ ` 25) 150
Carrying cost of average inventory (36,000 ÷ 6) = 6,000 units per order
Average inventory = 3,000 units
Carrying cost = 20% of ` 1 × 3,000 = 3,000 × 0.20 600
Total cost A 750

b) Total Annual Cost in E.O.Q

2 X 36,000 X 25
EOQ = = 3000 units
1X 20%
( `)
No. of orders = 36,000 ÷3,000 units = 12 orders
Ordering cost (12 × ` 25) = 300
Carrying cost of average inventory (3,000 × 0.20) ÷ 2 = 300
Total Cost B 600
Savings due to EOQ ` (750 – 600) (A – B) 150

Note: As the units purchase cost of ` 1 does not change in both the computation, the same has not
been considered to arrive at total cost of inventory for the purpose of savings.

Copy Rights Reserved

To MASTER MINDS,
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Problem No. 3

2 X18,250 X 50
Quantity to be purchased at a time =
20% of 36.50
18,25,000
=
7.3
= 2,50,000
= 500 units

Problem No. 4

2AO 2 X (52,000 X 12) X 350

a) EOQ = =
C XI 15 X 0.12

= 15,578 units of component ‘X’

b) Extra cost incurred by the company:

Total cost (when order size is 52,000 units) = Total ordering cost + Total carrying cost
A Q
= X O + X C XI
Q 2
 52,000 X 12  52,000
=   X `350 + X 15 X12%
 52,000  2
= `4,200+`46,800 = `51,000
Total cost, when order size is 15,578 units
 52,000 X 12  15,578
=  X 350  + X15 X 12%
 15,578  2
= 14,020+14,020 = 28,040
∴ Extra cost incurred = `51,000- `28,040 = `22,960

c) Minimum carrying cost, the company has to incur:

Q
= X C XI
2
15,578
= X15 X 12%
2
= `14,020.

Problem No. 5
Given that,
Annual requirement (A) = 2,000 × 12 = 24,000 Packets
Carrying Cost (C) = 10 ×10% = Rs.1 per packet p.a
Ordering cost (S) = Re.1.20 per order.

2AS 2 × 24,000 × 1.20

a) Economic Order Quantity (EOQ) = = = 240 Packets
C 1
b) Total of holding and carrying costs = Associated cost = 2ASC
= 2 X 24,000 X 1.20 X 1
= Rs.240
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 No.1 for CA/CWA & MEC/CEC MASTER MINDS
c) Monthly demand as given = 2,000 Packets
Consumption per day = 2000 = 66.67 Packets per day.
30
200
Existing stock will last for = = 3 days.
66.67

Conclusion: Immediately, by the time the existing stock will get exhausted a new delivery will be
obtained (It takes 3 days for New delivery). Therefore, the new order is to be placed immediately.

Problem No. 6
Calculation of EOQ:-
Given,
Annual Usage (A) = 8,000 units
Ordering cost per order(S) = Rs.200
Carrying cost per unit p.a (C)= 400 X 20% = Rs. 80
2AS 2 X 8,000 X 200
EOQ = = = 200 units.
C 80

Calculation of total inventory cost p.a. at EOQ:

Particulars Amount
Purchase cost = 8,000 X 400 32,00,000
A 8,000  8,000
Ordering cost  XO = X 200 
Q 200 

Q 200  8,000
Carrying cost  XC Xi= X 400 X 20% 
 2 2 
32,16,000

Calculation of total inventory cost p.a. with quantity discount:

Particulars Amount
Purchase cost = 8,000 X(400 - 4%) 30,72,000
A 8,000  400
Ordering cost  XO = X 200 
Q 4,000 

Q 4,000  1,53,600
Carrying cost  XC = X 384 X 20% 
 2 2 
Total Rs.32,26,000

Quantity discount offered should not be accepted as it results in increase in total cost of inventory
management by Rs. 10,000.

Problem No. 7
(i) Given 1kg of M requires 3 kgs of ‘X’ and quarterly demand = 8000 units of M.
∴ Annual requirement of ‘X’ = 8000 X 4 X 3kgs
= 96000 kgs of ‘X’
‘S’ ordering Cost = 1,000 per order
Carrying Cost ‘C’ = 20 X 15% = 3
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⇒ EOQ = 2(1000 )(96000 )
3
= 8000 units.

Associated cost = 2(96000 )X1000 X3 = 24000

Raw Material Cost = 96000 X 20 per kg = 19,20,000
Total Cost = 19,44,000

96000
(ii) If Company accepts discount then order size = = 24000 units
4 orders
Then purchase price = 720 – 2% = 19.6
Carrying cost = 19.6 X 15% = 2.94
∴ Ordering Cost = 4 orders X 1000 = 4000
1
Carrying Cost = 24000 X X 2.94 = 35,280
2
Raw Material Cost = 96,000 kgs X 19.6 per kg = 18,81,600
Total Cost at Discount = 19,20,880

Discount should be accepted by the company as it results in savings of (19,44,000 - 19,20,880) =

23,120

Problem No. 8
A = 5,000 tonnes
S = Rs.1,200
CI = 20%
P = Rs.1,500
20
C = 1,500 X = 300
100
Statement showing calculation of total cost at different order sizes:
Total
No.of Ordering Carrying Materials
Order size cost(M+C.C+O.C)
orders cost p.a cost p.a coat p.a
p.a
400 12.5 15,000 48,000 60,00,000 60,63,000
500 10 12,000 59,000 59,00,000 59,71,000
1,000 5 6,000 1,16,000 58,00,000 59,22,000
2,000 2.5 3,000 2,28,000 57,00,000 59,31,000
3,000 1.67 2,004 3,36,000 56,00,000 59,38,000

Therefore Economical purchase level = 1,000 tonnes (least cost)

Note:
A
a) Number of orders =
EOQ
Ordering cost = no. of orders X cost per order
Order size X Price X %of C.C
Carrying cost =
2
Material cost = Annual demand X price per tone

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 No.1 for CA/CWA & MEC/CEC MASTER MINDS
b) EOQ, when price is Rs.1,500
2AS
EOQ =
C
= Rs.200
Associated cost = 2ASC = Rs.60,000.

Problem No. 9
Working Notes:

1. EOQ without discount

2AS
EOQ =
C
2 X 250 Units X ` 20
= Copy Rights Reserved
`4
To MASTER MINDS,
= 2,500
= 50 units

2. Prices with discount for different order size

5% Discount = 30 – 5% = ` 28.50
10% Discount = 30 – 10% = ` 27.00
12% Discount = 30 – 12%= ` 26.40
Statement of Computing Total cost at various order sizes
Orders Carrying cost
No. of Orders Ordering Cost Purchase Total cost
size of average
in a year (`) cost (`) (`)
(units) inventory (`)
(1) (2) (3) (4) (5) (3+4+5)= (6)
50  250 Units  100  50 Units  7,125 7,325
5  

(5 orders×`20) 100  X 4 (250 ×`28.50)
 50 Units   2 
100  250 Units  50  100 Units  6,750 7,000
2.5  

(2.5 oders×`20) 200  X 4 (250 ×`27)
 100 Units   2 
125  250 Units  40  125 Units  6,750 7,040
2  

(2 oders×`20) 250  X 4 (250 ×`27)
 125 Units   2 
200  250 Units  25  200 Units  6,600 7,025
1.25*  

(1.25 400  X 4 (250 ×`26.4)
 200 Units  oders×`20)  2 
250  250 Units  20  250 Units  6,600 7,120
1  

(1oder×`20) 500  X 4 (250 ×`26.4)
 250 Units   2 

Optimal order quantity = 100 units

Minimum total cost of inventory and purchasing cost = ` 7,000.
Note: Theoretically it may be 2.5 orders, (250÷100), however practically 3 orders are required.
Therefore ordering cost would be ` 60 (3 × 20) and total cost ` 7,010 (60 + 200 + 6750).
(* Theoretically orders may be in fraction but in practicality orders shall be in a whole number.)

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Problem No. 10
Working notes:
1. Annual demand (30,000 units per quarter × 4 quarters) = 1,20,000 units
2. Raw material required for 1,20,000 units (1,20,000 units × 1.5 kg.) = 1,80,000 kg.

2 X 1,80,000 kgs. X 1,000

3. EOQ =
2
= 13,416 kgs.(appx)
4. Total cost of procurement and storage when the order size is equal to EOQ or 13,416 kg.
No. of orders (1,80,000 kg. ÷ 13,416 kg.) = 13.42 times or 14 times
Ordering cost (14 orders × `1,000) = ` 14,000
Carrying cost (½ × 13,416 kg. × ` 2) = ` 13,416
Total cost = ` 27,416
(i) Re-order point = Safety stock + Lead time consumption
1,80,000 kg.
= 8,000 kg. + X 24 days
360 days

= 8,000 kg. + 12,000 kg. = 20,000 kg.

(ii) Statement showing the total cost of procurement and storage of raw materials (after
considering the discount)

Total cost of
Order No. of Total cost of Average
storage of raw Discount Total Cost
size orders procurement stock
materials
Kg. (`) Kg. (`) (`) (`)
(1) (2) (3)=(2)×`1,000 (4)=½×(1) (5)=(4)×`2 (6) (7)=[(3)+(5)– (6)]
1,80,000 1 1,000 90,000 1,80,000 32,000 1,49,000
90,000 2 2,000 45,000 90,000 20,000 72,000
45,000 4 4,000 22,500 45,000 - 49,000
30,000 6 6,000 15,000 30,000 - 36,000

(iii) Number of orders which the company should place to minimize the costs after taking EOQ also into
consideration is 14 orders. Total cost of procurement and storage in this case comes to ` 27,416
(please refer working note-4 above), which is minimum.

Problem No. 11
A = Annual usage = 1,800 x 12 = 21,600 units
S = Ordering cost per order = Rs.5
C = Carrying cost per unit per annum = 0.20 x 12m = Rs.2.40

2AS 2 x 21,600 x 5
a) E.O.Q. = = = 300 units
C 2.40
b) Calculation of Reorder point:
Given lead time = 2 days
1,800 units
Consumption / day = = 60 units / day
30 days

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 No.1 for CA/CWA & MEC/CEC MASTER MINDS
Lead time consumption = 2 days x 60 units = 120 units
Safety stock = 50% (120 units)
50
= 120 x = 60 units
100
Reorder point = lead time consumption + safety stock
= 120 + 60 = 180 units

c) Calculation of economic purchase level

O.C per month C.C per month Net Cost
No.of Order Qty
(No.of order x (1/2 x avg inventory Discount (O.C+C.C-
Orders per month
O.C per order) x C.C.P.U.P.M) Discount)
1 1800 1x5=5 180 20 165
2 900 2x5=10 90 15 85
3 600 3x5=15 60 10 65
4 450 4x5=20 45 6 59
5 360 5x5=25 36 - 61
6 300 6x5=30 30 - 60
7 257 7x5=35 26 - 61

Economical purchase level = 450 Units

Problem No. 12
2AO
a) EOQ =
PC
Where, A = annual consumption
O = ordering cost per order
PC = carrying cost per unit per annum
2 X12,000 X 12
=
1X (24 / 100 ) Copy Rights Reserved

288
To MASTER MINDS,
=
0.24

= 12,00,000
= 1,095.4 units say 1,100 units

b) When should the order be placed i.e. reordering level

Reordering level = Safety stock + Normal lead time consumption
12,000  12,000 
Reordering level =  X 30  +  X 15 
 360   360 

= 1,000 + 500 = 1,500 units

c) What should be the inventory level immediately before the material ordered is received i.e.
safety stock
12,000 
Safety stock =  X 30  = 1,000 units
 360 

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Problem No. 13
Given
A B
Max usage (weekly) 75 75
Average Usage 50 50
Minimum Usage 25 25
R.O.Q 300 500

Average
Lead time Maximum Minimum  Minimum + Maximum 
 
 2 

A 6 4 5
B 4 2 3

a) R.O.L = Maximum usage X Maximum Lead time

(A) = 75 X 6 = 450
(B) = 75 X 4 = 300

b) Minimum Stock level = R.O.L – (Average Usage X Average Lead Time)

(A) = 450 – (50 X 5) = 200
(B) = 300 – (50 X 3) = 150

c) Maximum Stock Level = R.O.L + R.O.Q – (Minimum Usage X Minimum L.T)

(A) = 450 + 300 – (25 X 4) = 650
(B) = 300 + 500 – (25 X 2) = 750

Minimum Stock Level + Maximum Stock Level

d) Average Stock level =
2
200 + 650
(A) = = 425
2
150 + 750
(B) = = 450
2

Problem No. 14
(i) Economic Order Quantity (E.O.Q)
2 X Annual requiremen t of ' Re x X ordering cos t per order
=
Annual carrying cos t per unit per annum
2 X 60,000units X 800
=
10 X 15%
9,60,000
= = 8,000 units
1.5

(ii) Re-order Level = Safety Stock + (Normal daily Usage × Re-order period)
 60,000units 
= 600 +  X 10days 
 300 days 
= 600 + 2,000 = 2,600 units

(iii) Maximum Stock Level = E.O.Q (Re-order Quantity) + Safety Stock

= 8,000 units + 600 units
= 8,600 units
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 No.1 for CA/CWA & MEC/CEC MASTER MINDS
1
(iv) Average Stock Level = Minimum stock level + Re− order Quantity
2
1
= 600 * + 8,000 units
2
= 4,600 units
Maximum stock level + Minimum stock level
Average Stock Level =
2
8,600units + 600units
=
2
= 4,600 units
* Minimum Stock Level = Re-order level – (Normal daily usage × Re-order period)
 60,000units 
= 2,600 −  X10days 
 300days 

= 2,600 – 2,000 = 600 units

OR
Minimum Stock Level = Safety Stock level = 600 units

Problem No. 15

a) Re-order Quantity = Economic order Quantity -200kgs

= 1200kg -200kg
= 1000kg
2AS
Economic order Quantity (EOQ) =
C

2X17200 kgX720
=
125X13.76%
=1200 kg
A= Annual consumption /purchase
S = Ordering Cost per order
C = Carrying cost per unit per annum

No. of units to be sold 10,000units

(+) closing stock of Finished Goods Nil
(-) o/p stock of Finished Goods 900 units
Production 9100 units
Annual consumption 18200kg (9100x2kg)
(+) Closing stock of RM Nil
(-) o/ping stock of RM 1000kg
Annual Demand/purchase 17200 kg

b) Maximum stock level :

= Reorder level + Reorder Quantity – (Min consumption per day x min lead time)
= 560kg +1000kg - (30kg x 4 days)
=1560kg-120kg = 1440kg
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Re order level = Maximum Consumption per day x maximum lead time
 Annual consumption 
= + 20 Kg x 8days
 No. of days 

18200 kg 
=  + 20 kg x8 days
 364 

= 560kgs

Max consumption per day = 50 kg + 20kg =70 kg

Average Consumption = Min consumption + Max. consumption
2
50kg = Min consumption +70 kg
2
Min. consumption = 100-70 = 30kg

c) Minimum stock level:

= Reorder level – (Average consumption per day x Average lead time)
= 560 kg – (50kg x 6 days) = 260kg

d) Impact on the Profitability of the company by not ordering the EOQ

Particulars When purchasing the ROQ when purchasing the EOQ

Order Quantity 1000kg 1200kg

No of orders a year  17200   17200 

A 18 orders   15 orders  
 
   1000   1200 
 ROQ / EOQ 
Ordering cost (No of orders x s) 12960 10800

Carrying cost 8600 10320

1  1   1200 
= (ROQ / EOQ) X XC 1000 X X17.2   X17.2 
2  2   2 

Associated cost (O.C+C.C) 21560 21120

Extra cost incurred due to not ordering EOQ = 21560-21120 = 440.

Problem No. 16
Given that,
Reorder Level (ROL) = 64,000 units
Reorder Quantity (ROQ) = 40,000 units
Minimum Stock = 34,000 units Copy Rights Reserved
Maximum Stock = 94,000 units To MASTER MINDS,
Average lead time = 2.5 days
⇒ Average lead time = 2.5 days

⇒ Max.Lead Time2+ Min.Lead Time = 2.5 days

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 No.1 for CA/CWA & MEC/CEC MASTER MINDS
⇒ Maximum + Minimum = 5 days
Maximum – Minimum = 3 days (Given in the problem)
2 Maximum = 8 days
∴ Maximum lead time = 4 days; Minimum lead time = 1 day

Maximum Usage:
⇒ Reorder level = Maximum usage × Maximum lead time
⇒ 64,000 = Maximum usage × 4;
64,000
∴ Maximum usage = = 16,000 units
4

Minimum Usage:
⇒ Maximum level = Reorder level + Reorder quantity – (Minimum usage × Minimum lead time)
⇒ 94,000 = 64,000 + 40,000 – (minimum usage × 1)
∴ Minimum usage = 1,04,000 – 94,000 = 10,000 units

Problem No. 17
Given that,
Minimum Stock Level of A = 4,000 units.
Average Stock Level of A = 9,000 units.
1 Copy Rights Reserved
Average level = Minimum level + ROQ
2 To MASTER MINDS,
⇒ 9,000 = 4,000 +
1
2
ROQ ⇒1
2
ROQ = 5,000
∴ Reorder Quantity = 10,000 units

Problem No. 18
2AS
i) Economic order Quantity(EOQ) =
C
2X36,000 X35,000
=
17.5
= 12000 Litres

ii) 10% of risk of being out of stock indicates 90% of having stock. which will take 14days lead time
A
Safety stock = x (14 days-12 days)
360days
36,000
= x 2days
360
= 200litres
Reorder point = Minimum stock level + (Average lead time x Average consumption)
= 200 + (12x100)
= 1400 litres

iii) At 5% risk of being out stock represent 95% chance of having stock
Safety stock days = 15 days -12 days
= 3 days

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 A 
Total ordering cost = No of orders  xs
 EOQ 
36,000
= X35000
12000
= Rs1,05,000
Total carrying cost of inventory = (safety stock + Average inventory x carrying cost/pu/p.a)
 36000 1 
= x3days + (12000 x ) x 990* x1.7676%
 360 2 
= (300+6000) x 990x 1.7676%
= Rs. 110245.212 x 900+10% = 990

Problem No. 19
Cost material consumed 365 days
Material Turnover Ratio (In times) = (In days) =
Average stock No.of times

Particulars Material A Material B

Material Consumed
10,000 + 52,000 – 6,000 = 9,000 + 27,000 – 11,000 =
(Opening Stock + Purchases –
56,000 units 25,000 units
Closing Stock)
Material Turnover Ratio 56,000 25,000
= 7 times = 2.5 times
(In times) 8,000 10,000
Material Turnover Ratio 365 365
= 52 days = 146 days
(In days) 7 2.5

Conclusion: Material A is fast moving item compared to Material B.

Problem No. 20
i) Calculation of purchase cost per kg of each Raw materials
Particulars Mustard Soya bean olive
Whole sale market:
Purchase Price 15 11 36
(+) CST 0.3 - -
(+) Import Duty - - -
(+) Loading cost  10  0.20 0.20
0.20  
 
 50kg 
(+) un loading cost  2Rs  0.04 0.04
0.04  
 
 50kg 
15.54 11.24 36.24
Farmers:
Purchase Price 12.50 9 28
(+) CST - - -
(+) Import Duty - - 2.8
(+) loading cost  5  0.06 0.50
0.10  
 
 50kg 
(+) un loading cost  2  0.04 0.04
0.04  
 
 50kg 
12.64 9.10 31.34
IPCC_34e_Costing _ Materials_ Assignment Solutions _________________12
 No.1 for CA/CWA & MEC/CEC MASTER MINDS
ii) Statement showing EOQ of each material under Each option:

Particulars Mustard Soyabean Olive

Annual Requirement (A) 27,00,000kg
(45000x5kgx12Months) 1080,000kg 162000kg

Whole Sale Market:

Transportation cost 6000 3000
9000

Sorting / piling cost - 1800

-

Order cost /order (S) 6000 9000 4800

Interest on cash credit 1.9425(15.54x12.5%)
1.4050 4.5300

Warehouse rent 1 1 1
Caring cost/p.u/p.a 2.9425 2.4050 5.5300
 2 AS  2x2700000 x6000
EOQ   104933.53 89906.40 16769.90
 C  2.9425
 

Farmers:
Transportation cost 15,000 12,000 11,000
Sorting / piling cost 1,200 800 -
Order cost /order (S) 16,200 12,800 11,000
Interest on cash credit 1.58(12.64x12.5%) 1.1375 3.9175
Warehouse rent  100Rs 
1  
 1 1
 100Kg 

Carrying cost/p.u/p.a (c) 2.5800 4.9175

2.1375

2AS 184138.47
EOQ
C 2 X2700,000 X6000 113730.98 26921.34
2,9425

iii) Statement showing Annul cost of R.M (Olive)

Particulars Whole sale Market Farmers

Annul Requirement(A) 162000Kg 162000kg
Order Quantity (Q) 16769.90 16200
A 9.66 @ 10 1
No. of orders ( )
Q
a. Total Ordering cost (No of orders x s) 48000 11000
b. Total carrying cost (order Quantityx1/2 xc) 46368.77 398375
c. purchase cost 5870880 5077080
Total Cost (a+b+c) 5965248.77 5486397.50

Decision: It is best to purchase the olive from famer because of its lower cost

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Problem No. 21

A B
Particulars
Quantity Price Quantity Price
Raw Material Price 10,000 @ 10 per 1,00,000 8,000 @ 13 kg 1,04,000
kg
Add: C.S.T @ 10% - 10,000 - 10,400
- 1,10,000 - 1,14,400
Less: Normal Loss 500 - 320 -
units
9,500 1,10,000 7,680 1,14,400
Add: Railway - 2,133 - 1,707
freight (W.N.1)
9,500 1,12,133 7,680 1,16,107
Less: 2% further 190 - 154 -
deterioration
9,310 1,12,133 7,526 1,16,107

W.N.1: Railway freight Expenditure is divided on the basis of quantity of Chemical A and B.
i.e. in the Ratio of 10:8 = 2133 and 1707
∴ Cost per kg of chemical A & B
Cost 1,12,133 1,16,107
= and = 12.04 and 15.43
Quantity 9310 7526

Problem No. 22

Statement showing Stores Ledger (F1FO)

Receipts Issues Balance

Date Particulars
Qty R.P.U Amt Qty R.P.U Amt Qty R.P.U Amt
1-9-01 Opening Stock - - - - - - 25 20 500
4-9-01 Issues - - - 8 20 160 17 20 340
Receipts from 17 20 340
6-9-01
B &.Co. 20 18 360 - - - 20 18 360
Returns to 17 20 340
10-9-01
B &.Co. - - - 10 18 180 10 18 180
13-9-01 Issues - - - 15 20 300 2 20 40
10 18 180
2 20 40
Receipts from
15-9-01 10 18 80
M&.Co.
20 19 380 - - - 20 19 380
2 20 40 2 18 36
17-9-01 Issues - - -
8 18 144 20 19 380
Returns from 2 18 36
20-9-01
M & Co. 5 19 95 - - - 25 19 475
30-9-01 Shortages - - - 2 18 36 25 19 475
45 860

Value of closing stock under FIFO Method (25 units) = Rs. 475.
Value of Raw material consumed under FIFO Method (45units) = Rs. 860.
IPCC_34e_Costing _ Materials_ Assignment Solutions _________________14
 No.1 for CA/CWA & MEC/CEC MASTER MINDS
Treatment of shortage: Assuming it as a normal loss, treated as issues.

Note 1: Returns to B & Co. is to be recorded at the price at which the material was purchased.

Note 2: Returns to supplier – Issues (purchase price)

Returns from production Dept. to stores Dept. – Receipts (Issue price)

Note 3: Returns from production Dept. – 20-09-01

Note 4: Transfer from one job to another job – to be ignored as it is a transaction taken place only in
production department.
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Note 5: Transfer from Dept. A to Dept. B – is to be ignored.
To MASTER MINDS,
Assumptions:
1. Returns were made out of the issues in the month of August.
2. The purchase price of materials from M & Co. is Rs.19 per unit.

Problem No. 23
Stores Ledger of AT Ltd. for the month of September, 2011 (FIFO Method)
RECEIPT ISSUE BALANCE
Date GRN Qty. Rate Amount Requi Qty. Rate Amount Qty. Rate Amount
No. Units (` ) (` ) sition Units (` ) (` ) Units (` ) (` )
MRR No.
No.
1-9-11 — — — — — — — — 25 6.50 162.50
4-9-11 — — — — 85 8 6.50 52 17 6.50 110.50
6-9-11 26 50 5.75 287.50 — — — — 17 6.50
50 5.75 398.00
7-9-11 — — — — 97 12 6.50 78 5 6.50
50 5.75 320.00
10-9-11 — — — — Nil 10 5.75 57.50 5 6.50
40 5.75 262.00
12-9-11 — — — — 108 5 6.50
10 5.75 90 30 5.75 172.50
13-9-11 — — — — 110 20 5.75 115 10 5.75 57.50
15-9-11 33 25 6.10 152.50 — — — — 10 5.75
25 6.10 210.00
17-9-11 — — — — 121 10 5.75 57.50 25 6.10 152.50
19-9-11 38 10 5.75 57.50 — — — — 25 6.10
10 5.75 210.00
5 5.75
20-9-11 4 5 5.75 28.75 — — — — 25 6.10
10 7.75 258.75
26-9-11 — — — — 146 5 5.75 20 6.10
5 6.10 59.25 10 5.75 179.50
30-9-11 — — — — Shorta 2 6.10 12.20 18 6.10
ge
10 5.75 167.30

Working Notes:
1. The material received as replacement from vendor is treated as fresh supply.

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2. In the absence of information the price of the material received from within on 20-9-11 has been
taken as the price of the earlier issue made on 17-9-11. In FIFO method physical flow of the
material is irrelevant for pricing the issues.
3. The issue of material on 26-9-11 is made out of the material received from within.
4. The entries for transfer of material from one job and department to other on 22-9-11 and 29-9-11
are book entries for adjusting the cost of respective jobs and as such they have not been shown in
the stores ledger account.
5. The material found short as a result of stock taking has been written off.

Problem No. 24
Stores ledger [FIFO]
Receipts Issues Balance
Date Particulars
Units Rate Amount Units Rate Amount Units Rate Amount
Jan 1. Purchase 100 1 100
100 1 100 - - -
Jan 20 Purchase 100 1 100
100 2 200 - - -
100 2 200
Jan 22 Issue 40 1 40
- - - 60 1 60
(Job w/16) 100 2 200
Jan 23 Issue (JobW17) 40 1 40
- - - 80 2 160
20 2 40

Stores ledger [LIFO]

Receipts Issues Balance
Date Particulars
Units Rate Amount Units Rate Amount Units Rate Amount
Jan 1. Purchase 100 1 100
100 1 100 - - -
Jan 20 Purchase 100 1 100
100 2 200 - - -
100 2 200
Jan 22 Issue 100 1 100
- - - 60 2 120
(Job W16) 40 2 80
Jan 23 Issue (JobW17) 40 2 80
- - - 80 1 80
20 1 20

Stores ledger [Weighted average Method]

Receipts Issues Balance
Date Particulars
Units Rate Amount Units Rate Amount Units Rate Amount
Jan 1. Purchase 100 1 100
100 1 100 - - -
Jan 20 Purchase 100 2 200 - - - 200 1.5 300
Jan 22 Issue
- - - 60 1.5 90 140 1.5 210
(Job W16)
Jan 23 Issue (JobW17) - - - 60 1.5 90 80 1.5 120

Statement showing value of job W 16, 17 & closing stock

Particulars FIFO LIFO Weighted average
Material for job 16 60 120 90
Job 17 80 100 90
Closing 160 80 120
sheet 300 300 300
Conclusion:
a) In case of Rising Prices use of FIFO give rise to high profits & LIFO Method will give low Profits

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 No.1 for CA/CWA & MEC/CEC MASTER MINDS
b) In case of weighted average there is no significant adverse (or) favorable effect on the cost
material as well as an profits
c) Hence weighted Average method is Preferred over FIFO & LIFO Methods

Problem No. 25
Store Ledger of Aditya Ltd. (Weighted Average Method)
Date Receipts Issues Balance of Stock
Feb. Qty Rate Amount Qty Rate Amount Qty Rate Amount
(kg.) (`) (`) (kg.) (`) (`) (kg.) (`) (`)
1 - - - - - - 1,200 475.00 5,70,000
5 - - - 975 475.00 4,63,125 225 475.00 1,06,875
6 3,500 460.00 16,10,000 - - - 3,725 460.91 17,16,875
7 - - - 2,400 460.91 11,06,175 1,325 460.91 6,10,700
9 475 460.91 2,18,932 - - - 1,800 460.91 8,29,632
15 1,800 480.00 8,64,000 - - - 3,600 470.45 16,93,632
17 - - - 140 480.00 67,200 3,460 470.07 16,26,432
20 - - - 1,900 470.07 8,93,133 1,560 470.06 7,33,299
28 - - - 180* 470.06 84,611 1,380 470.06 6,48,688

* 180 kgs. is abnormal loss, hence it will be transferred to Costing Profit & Loss A/c.

Problem No. 26

a) Total purchases over a fen rod of 6 months =2500 units (Jan to June)
Total issues over a period of 6 month = 2300 units
Closing stock in June month (2500-2300) = 200 units
Last month (June) period of 600units & issue in the same month is 400units. It means entire closing
stocks on June month (200 units) are out of June month purchase. It means that there is no
opening stock a June month
i) Hence No Matter which method of pricing issue is used, will result the same value of closing
stock.
ii) Therefore argument of chief Accountant is tenable

b) LIFO Method:
i) Under this method, the cost of materials issued will be either nearer (or) will reflect the current
market price.
ii) The use of the method during the period of rising prices does not reflect undue high profit in the
income statement, as it was under the FIFO (OR) Average method.
iii) In the case of falling prices, profit tends to rise due to lower material cost, yet the finished goods
appear to be more competitive and are at market price.
iv) During the period of Inflation, LIFO will tend to show the correct profit & thus, avoid paying
undue Taxes to some extent.

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Problem No. 27
Classification of the items of inventory as per ABC analysis
1. 15 number of varieties of inventory items should be classified as ‘A’ category items because of the
following reasons:
a) Constitute 0.375% of total number of varieties of inventory handled by stores of factory, which is
minimum as per given classification in the table.
b) 50% of total use value of inventory holding (average) which is maximum according to the given
table.
c) Highest in consumption about 85% of inventory usage (in end-product).

2. 110 number of varieties of inventory items should be classified as ‘B’ category items because of the
following reasons :
a) Constitute 2.750% of total number of varieties of inventory items handled by stores of factory.
b) Requires moderate investment of about 30% of total use value of inventory holding (average).
c) Moderate in consumption about 10% of inventory usage (in end–product).

3. 3,875 number of varieties of inventory items should be classified as ‘C’ category items because of
the following reasons:
a) Constitute 96.875% of total varieties of inventory items handled by stores of factory.
b) Requires about 20% of total use value of inventory holding (average).
c) Minimum inventory consumption i.e. about 5% of inventory usage (in end-product).

THE END

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IPCC_34e_Costing _ Materials_ Assignment Solutions _________________18