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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 N550.00 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$2/unit/year (excluding the cost of capital) Required: Calculate the following inventory levels: 2.1 Economic order quantity (5) Number of orders to be placed per year (2) Re-order level (Re-order point) (2) Minimum inventory level (Safety stock) (3) Average inventory (3) Maximum inventory (2) 2.2 2.3 2.4 2.5 2.6
-1 related to Tekla Ltd
1. Re-orderstock level= Average Usage Multply Average Lead time Plus safety stock
6000 units Multiply 4 weeks Plus ((max usage * max lead time in days) – (average usage * average lead time in days)
= 24000 + (48000- 24000)
48000 units
Re-order stock point= 48000 units
2. Minimum Stock Level= Re-order Level – (Average Consumption per week. X Average Lead time).
48000 - [ (8000+4000)/2 X (6 + 2)/2]
48000 - 24000
24000 units
3. Economic Order Quantity=
Where,
Annual demand= Average usage per month Multiply 12 months
6000 Multiply 12 months
78000 units
Cost per order= N$ 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=
Where,
= 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=
Where,
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.
