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Homework answers / question archive / The following information regarding Tekla LTD 6 weeks 2 weeks Maximum lead time Minimum lead time Masimum usage Minimum usage Purchase priceperunt Average annual storage cost per unit Cost to place an order Prime interest rate Production works per annum Stockfinancing is by overdratt 8 000 units per month 2000 units per month N550

The following information regarding Tekla LTD 6 weeks 2 weeks Maximum lead time Minimum lead time Masimum usage Minimum usage Purchase priceperunt Average annual storage cost per unit Cost to place an order Prime interest rate Production works per annum Stockfinancing is by overdratt 8 000 units per month 2000 units per month N550

Accounting

The following information regarding Tekla LTD 6 weeks 2 weeks Maximum lead time Minimum lead time Masimum usage Minimum usage Purchase priceperunt Average annual storage cost per unit Cost to place an order Prime interest rate Production works per annum Stockfinancing is by overdratt 8 000 units per month 2000 units per month N550.00 N52.20 N$120.00 1150 NB: (assume 4 weeks are equivalent to 1 month REQUIRED 1 Re-order stock level 2 Minimum stock level 3. Economic order quantity 4 Average stock level 5. Order cost per annum 14 16 14) 
Question 1 MY & Mr X run a small practice as manufacturers and need some advice from you as a Cost & Management Accountant You are presented with the following information it takes them two to four months to receive the raw materials from their suppliers. The firm requires 300 units per month at most but normally use 150 units per month. At least 50 units should always remain in the warehouse at all times. Normally they require 1 800 units for their financial period. It costs them $2.00 each time they arder and pay N$0.32 per unit of materials. They rent a warehouse and they are charged a 25% inventory value per annum Required 11 At what point should the inventory be replenished? 2 marks 12 How many units would they order each? 3 marks 13 What would be the annual holding cost? 7 marke 14 What would be the annual ordering cost? marks 1s What would be the cost of purchasing the inventory for the year? QUESTION 2 (27 mars Tau-Tau lod supplied the following information regarding a particular product in inventory Maximum lead time Minimum lead time Interest rate Cost price per unit N$20 Ordering cost N$26,52 per order Maximum weekly 3300 units Minimum weekly 3000 units Carrying holding cout N52/unit/year excluding the cost of capital Beared Calculate the following inventory levels 2.1 Economic order quantity 2.2 Number of orders to be placed per year 12) 2.3 Re-order level Re-order point) 023 24 Minimum inventory level Safety stock) 2.5 Average inventory 2.6 Maximum inventory 121 
QUESTION 1 The following information regarding Tekla LTD Maximum lead time Minimum lead time Maximum usage Minimum usage Purchase price per unit Average annual storage cost per unit Cost to place an order Prime interest rate Production weeks per annum Stock financing is by overdraft 6 weeks 2 weeks 8 000 units per month 4000 units per month N$50.00 N$2.20 N$120.00 11.50% 48 NB: (assume 4 weeks are equivalent to 1 month) REQUIRED: 1. Re-order stock level 2. Minimum stock level 3. Economic order quantity 4. Average stock level 5. Order cost per annum (4) (4) (4) (4) (4) 
Question 1 15 marks MrY & Mr X run a small practice as manufacturers and need some advice from you as a Cost & Management Accountant You are presented with the following information: it takes them two to four months to receive the raw materials from their suppliers. The firm requires 300 units per month at most; but normally uses 150 units per month. At least 50 units should always remain in the warehouse at all times. Normally they require 1 800 units for their financial period. It costs them N$2.00 each time they order and pay N$0.32 per unit of materials. They rent a warehouse and they are charged a 25% on inventory value per annum. Required: 1.1 At what point should the inventory be replenished? 2 marks 1.2 How many units would they order each? 3 marks 1.3 What would be the annual holding cost? 7 marks 1.4 What would be the annual ordering cost? 2 marks 1.5 What would be the cost of purchasing the inventory for the year? 1 mark QUESTION 2 (17 marts) Tau-Tau Ltd supplied the following information regarding a particular product in inventory: Maximum lead time 5 weeks Minimum lead time 2 weeks Interest rate 5%p.a. Cost price per unit N$20 Ordering cost N$26,52 per order Maximum weekly usage 3 800 units Minimum weekly usage 3 000 units Carrying (holding) cost N$2/unit/year (excluding the cost of capital) Required: Calculate the following inventory levels: 2.1 Economic order quantity (5) Number of orders to be placed per year (2) Re-order level (Re-order point) (2) Minimum inventory level (Safety stock) (3) Average inventory (3) Maximum inventory (2) 2.2 2.3 2.4 2.5 2.6

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-1 related to Tekla Ltd

1. Re-orderstock level=  Average Usage Multply Average Lead time Plus safety stock

6000 units Multiply 4 weeks Plus ((max usage * max lead time in days) – (average usage * average lead time in days)

= 24000 + (48000- 24000)

48000 units

Re-order stock point= 48000 units

2. Minimum Stock Level= Re-order Level – (Average Consumption per week. X Average Lead time).

48000 - [ (8000+4000)/2   X (6 + 2)/2]

48000 - 24000

24000 units

3. Economic Order Quantity=

  EOQ = 2 x D x Co Ch

Where,

  • D = Demand per year
  • Co = Cost per order
  • Ch = Cost of holding per unit of inventory

Annual demand= Average usage per month Multiply 12 months

6000 Multiply 12 months

78000 units

Cost per order= N$ 120 per order

Ch= N$ 2.2 per unit

EOQ= Square toot (2 X 78000 X 120) divided by 2.2

2917 units (approx)

4. Average Stock= (Minimum stock Level + 1/2 of Reorder Quantity.

24000 +

6000 units

5. Order cost per annum= No. of Order Multiply Per order cost

No. of Order= Total Annual requirement divided by EOQ

78000/2917

27 order (Approx)

Order cost per annum= 27 Order Multiply N$ 120

N$ 3240/-

Note: We assumet that holding cost of inventory given in the question is inclusive of interest cost and therefore not to be added further while calculating interest cost.

Answer Q-1 Mr. Y and Mr. X

Information given in the question;

Minimum Lead time- 2 months

Maximum lead time- 4 months

Most Usage- 300 units

Normal Usage- 150 units

Safety Stock- 50 units

Annual requirement- 1800 units

Order Cost- N$ 2 per order

Unit cost- N$ .32 per unit of material

Storage cost- 25% of inventory value

Requirement:

1. Replenishment is typically triggered when inventory levels hit what's known as the reorder point. The reorder point is the point at which stock needs to be reordered – taking into account current and future demand, along with how long it will take your supplier to send you the new order.

Formula:   Re-orderstock level=  Average Usage Multply Averga Lead time Plus Safety Stock

150 units Multiply 3 months + 50 units

500 units

2. Order quantity

Economic Order Quantity=

  EOQ = 2 x D x Co Ch

Where,

  • D = Demand per year
  • Co = Cost per order
  • Ch = Cost of holding per unit of inventory

= Square root of (2 X 1800 X 2) divide by .08

EOQ = 300 units

3. Annual Holding Cost= Total inventory value Multiply Inventory holding percentage

(1800 X N$.32) X 25%

N$ 144.

4. Annual order cost= No. of Order Multiply Per order cost

No. of Order= Total Annual requirement divided by EOQ

1800/300

6 order

Annual order cost= 6 X N$ 2 per order

N$ 12.00

5. Annual Inventory Cost for the year= Material Cost Plus Inventory Holding cost + Order Cost

(1800 X N$.32) + N$ 144+ N$ 12  

N$ 732

Answer Q-2 Tau Tau Ltd

1.

Economic Order Quantity=

  EOQ = 2 x D x Co Ch

Where,

  • D = Demand per year
  • Co = Cost per order
  • Ch = Cost of holding per unit of inventory

Annual demand= Average usage per week Multiply 48 weeks

(3800+3000)/2 Multiply 48 weeks

163200 units

Co: N$ 26.52 per order

Ch= N$ 2 per unit Plus 5% of N$ 26.52

N$ 2.326

EOQ= Square root of (2 X 163200 X 26.52) divide by 2.326

1929 units (approx)

2. No. of order to be place: Annual requirement divide by EOQ

163200 divided by 1929 units

85 orders

3. Reorder point: Average Usage Multply Averga Lead time

3400 Multiply (5+2)/2

11900 units

4. Safety Stock= (max usage * max lead time in days) – (average usage * average lead time in days)

( 3800 Multiply 5 weeks) - ( 3400 * 3.5 weeks)

7100 units

5. Average Inventrory- (Minimum stock Level + 1/2 of Reorder Quantity.

7100 + 1/2 of 11900

13050 units

6. Maximum Inventory= Reordering Level + Reorder Quantity – (Minimum usage x Minimum lead time)

11900 + 1929 - ( 3000 Multiply 2 weeks)

7829 units.