Page 68 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes Solution:
ROL = (Maximum consumption) × (Maximum lead time)

= 20 units per day × 15 days
= 300 units
Maximum Level = ROL – (Minimum consumption × Minimum lead time)
+ Re-ordering quantity
= 300 – (10 units per day × 6 days) + 200 (1)

= 500 – 60
= 440 units
2UA
(1) (Re-order Quantity = ROQ = EOQ =
pC
2 × 5000× 20
� 40000 = 200 Units)
= = 40000
5
Minimum Level = ROL – (Average consumption × Average lead time)
= 300 – (15 units per day × 10 days)
= 300 – 150 =150 units
Danger Level = (Minimum consumption) × (Maximum lead time for
emergency purchase)
= 10 units × 4 days

= 40 units
Maximum level + Minimum level
Average Stock Level =
2
150+440
=
2
= 295 Units

Economic Ordering Quantity

The ordering of materials is usually tagged with three different components of costs viz:

z z Acquisition cost of materials
z z Ordering cost of materials and
z z Carrying cost of materials
The ordering quantity of materials may be either larger or lesser in volume, which carries its own
advantages and disadvantages.

If the quantity ordered is larger in volume, the following are some of the important advantages:
z z The bulk purchase order reduces the ordering cost of the materials.
z z The greater the size of the order leads to reduce the number of the orders in procuring the
materials.

Quantity discounts: The discount can be classified into two categories viz trade discount and
cash discount.

62 LOVELY PROFESSIONAL UNIVERSITY