Material
Costing Questions
Formulas:
1.Maximum Level
Maximum stock level = Re-order level + Re-ordering quantity –
(Minimum consumption x Minimum re-order period).
2.Minimum Level
Minimum level = Re-order level - (Normal consumption x Normal re-order period).
3.Danger or Safety Level
Safety stock level = Ordering level – (Average rate of consumption
×
Re-order period)
OR
(Maximum rate of consumption - Average rate of consumption)
×
Lead time
4.Ordering Level
Ordering level = Minimum level + Consumption during time lag period
OR
Maximum consumption x Maximum re-order period.
OR
Maximum consumption x Lead time + Safety Stock
Question 1
Materials X and Y are used as follows:
Minimum usage 50 units each per week
Maximum usage 150
units each per week
Normal usage 100 units each per week
Ordering quantities X = 600
units
Y = 1,000 units
Delivery period X = 4 - 6
weeks
Y = 2 - 4 weeks
Calculate for each material (i) Maximum level (ii) Minimum level and (iii) Ordering level.
Question 2
Ace Ltd. manufactures a product and the following particulars are collected for the year
ended March, 2013:
¾ Monthly demand (units) 250
¾ Cost of placing an order Tshs100
¾ Annual carrying cost ( per unit) Tshs15
¾ Normal usage (units per week) 50
¾ Minimum usage (units per week) 25
¾ Maximum usage (units per week) 75
¾ Re-order period (weeks) 4–6
You are required to calculate:
(i) Re-order
quantity
(ii) Re-order level
(iii)
Minimum level
(iv) Maximum level
(v) Average stock level.
Question 3
A factory requires 1,500 units of an item per month. The cost of each unit is Tshs27.
The cost
per order is Tshs150 and material carrying charge works out to 20% of the average material.
