Page 60 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 3: Material Control

3. Which method is most suitable for precious metals? Why? Explain the reasons. Notes

4. Why does the firm need to install inventory control? Explain the confl icting objectives
among the heterogeneous departments in maintaining the inventory.
5. You are required to suggest an inventory control mechanism for the following:

(a) Stores department of the Ball-bearing Manufacturing Company Ltd.
(b) Retail Medical Stores
(c) Wholesale Automobile Showroom
6. Explain the meaning and applications of the various tools of inventory level under the
inventory management.
7. Critically evaluate the roles of carrying costs and ordering costs on the economic order
quan tity.

8. The stock in hand of a material as on 1-9-2002 was 500 units at ` 1 per unit. The following
purchases and issues were subsequently made. Prepare the stores ledger account showing
how the value of the issues would be recorded under (a) FIFO and (b) LIFO method.
Purchased Issued
6-9-2002 100 units @ ` 1.20 9-9-2002 500 units
20-9-2002 700 units @ ` 1.20 22-9-2002 500 units
27-9-2002 400 units @ ` 1.30 30-9-2002 500 units
13-10-2002 1,000 units @ ` 1.40 15-10-2002 500 units
20-10-2002 500 units @ ` 1.50 22-10-2002 500 units
17-11-2002 400 units @ ` 1.60 11-11-2002 500 units
9. A manufacturer buys certain essential spares from outside suppliers at ` 40 per set. Total
annual requirements are 45,000 sets. The annual cost of investment in inventory is 10% and
costs like rent, stationery, insurance, taxes, etc. per unit per year work to ` 1. Cost of placing
an order is ` 5. Calculate the Economic Order Quantity.

10. Find out the Economic order quantity from the following information’s:
Annual usage : 3,000 units; Cost of material per unit: ` 10; Cost of placing and receiving one
order ` 60; and Annual carrying cost per unit: 10% of inventory value.

11. From the following transactions, prepare separately the stores ledger account, using the
FIFO and LIFO methods of pricing:
January 1 Opening Balance 100 units @ ` 5 each.

’’ 5 Received 500 units @ ` 6 each.
’’ 20 Issued 300 units.
February 5 Issued 200 units.

’’ 6 Received 600 units @ ` 5 each.
March 10 Issued 300 units.
’’ 12 Issued 250 units.
12. Select a manufacturing concern and outline a system of materials control for it. Give
specimen of various forms you will require.

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