Page 67 - DCOM202_COST_ACCOUNTING_I

Unit 4: Material Control

Maximum usage 450 units per week Notes
Minimum usage 150 units per week

Re-order period 4 to 6 weeks
Re-order quantity 2,400 units
Solution:
Re-order Level = Maximum usage × Maximum re-order period
= 450 × 6

= 2,700 units per week
Minimum Level = Re-order level – (Normal usage × Normal re-order period)
= 2,700 – (300x5)
= 2,700 – 1500

= 1,200 units per week
Maximum Level = (Re-order level + Re-order quantity) – (Minimum usage
× Minimum re-order period)
= (2,700 + 2,400) – (150 × 4)
= 5,100 – 600
= 4,500 units per week

Average Level = Minimum level + ½ (Re-order quantity)
= 1,200 + ½ × 2,400
= 1,200 + 1,200
= 2,400 units per week

Example: Calculate the following levels from the following information:
Re-ordering level, Maximum level, Minimum level, Danger level, Average stock level, and
Re-ordering quantity.
z z Number of units to be purchased during the year is 5,000.

z z Total costs of purchasing relating to the order are ` 20.
z z purchase price per unit including transportation costs is ` 50.
z z Annual cost of storage of one unit is ` 5.
Lead times: Average 10 days
Maximum 15 days
Minimum 6 days
Maximum for emergency purchases 4 days
Rate of consumption: Average 15 units per day

Maximum 20 units per day
Minimum 10 units per day

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