Page 214 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes production runsize
(b) Duration = Monthlydemand ×30

55
= × 30 = 66 days
25
55
= × 25 = 55 working days
25
 Shortagecos t 
(c) Re-order Level =  EBQ×  – Monthly demand
+
 Carrying cos tperunitShortagecos t 
=  ×  55 3   − 25
.
+ 
 0503
= 47 – 25 = 22 units

Example: A contractor has to supply 10,000 paper cones per day to a textile unit. He
finds that, when he starts a production run he can produce 25,000 paper cones per day. The cost
of holding a paper cone in stock for one year is 2 paise and the set up cost of a production run is
` 18. How frequently should production run be made?
Solution:

For 365 days at the rate of 10,000 paper cones it works out to 36,50,000 cones.
2US
(a) Economic Batch Quantity =
C
,
,
23650 000 18
×
×
=
.
002
EBQ = 81,100 cones
(b) production run in terms of days:
EBQ
=
Dailyproduction
81 100
,
= = 8.11 calendar days or 8 days
,
10 000

Task Component ‘Mee’ is made entirely in cost centre 100. Material cost is 6 paise per
component and each component takes 10 minutes to produce. The machine operator is
paid 0.72 paise per hour, and the machine hour rate is ` 1.50. The setting up of the machine
to produce component ‘Mee’ takes 2 hours 20 minutes.
On the basis of this information prepare cost sheets showing the production and
setting-up costs, both in total and per component, assuming that a batch of (i) 10 components,
(ii) 100 components, and (iii) 1,000 components and produced.

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