Page 66 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes Solution:
Re-order Level = Maximum usage × Maximum re-order period

= 420 units × 15 days = 6,300 units
Minimum Level = Re-order level – Normal consumption × Normal re-order period
= 6,300 – (300 units per day × 12 days)
= 6,300 – 3,600 = 2,700 units
Maximum Level = (Re-order level + Re-order quantity) – (Minimum consumption

× Minimum re-order period)
= (6,300 + 3,600) – (240 × 10)
= 9,900 – 2,400 = 7,500 units

Example: From the following data for the last twelve months, compute the average stock
level for the said component:
Consumption
Maximum usage in a month 300 Units

Minimum usage in a month 200 Units
Average usage in a month 225 Units
Time lag for procurement of material: Maximum – 6 months ; Minimum – 2 months.
Re-ordering quantity: 750 units.

Solution:
Re-order Level = Maximum usage × Maximum lead time
= 300 Units × 6 months
= 1,800 Units
Maximum Level = [ROL – (Minimum usage × Minimum lead time)] + ROQ

= [1,800 – (200 × 2)] + 750
= 2,150 Units
Minimum Level = ROL – (Average usage × Average lead time)
= 1,800 – (225 × (6 + 2) ÷ 2

= 1,800 – (225 × 4)
= 900 Units
Therefore, Average Level = (Maximum level + Minimum level ) ÷ 2
= (2,150 + 900) ÷ 2
= 1,525 Units

Example: Calculate Re-order level, Minimum level, Maximum level and Average stock
level from the following data:

Normal usage 300 units per week

60 LOVELY PROFESSIONAL UNIVERSITY