Material
& Process Answers – 26.3.16
Question:1
Solution:
Let Maximum Lead time = X, Minimum Lead
time = Y.
So,
X – Y = 4 So, X + Y = 12
Average
lead time=X+Y/2=6
On addition (to cancel Y), 2X = 16, So, X =
8, Y = 8 – 4 = 4
Hence,
Maximum Lead Time = 8 days, Minimum Lead Time = 4 days
Reorder Level = Maximum Usage × Maximum
Lead Time
1,60,000 units = Maximum Usage × 8
days
(a)
So, Maximum Usage = 20,000 units per day.
Maximum Level = ROL
+ EOQ (ROQ assumed as EOQ) – (Minimum Usage × Minimum Lead Time)
1,90,000 = 1,60,000 + 90,000 – (Minimum
Usage × 4 days)
(b)
So, Minimum Usage = 15,000 units per day
Question:2
Solution:
Working Notes
|
Process
A
|
Process
II
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1. LOSS ANALYSIS
Process
Loss = Input Quantity – Output
Quantity . = 40,000 – 37,000 = 3,000
Normal Loss Abnormal Loss
5% of 40,000 = 2000 (bal. fig) 1000
|
1. LOSS ANALYSIS
Process Loss
= Input Quantity – Output Quantity
=29,600 – 27,000=
2,600
Normal Loss Abnormal Gain
10% of 29,600 = 2,960 (bal. fig) 360
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2. COST ANALYSIS
|
2. COST ANALYSIS
|
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|
Particulars
|
Cost
|
Quantity
|
Particulars
|
Cost
|
Quantity
|
|
Gross
|
10,56,000
|
40,000
|
Gross
|
13,37,920
|
29,600
|
|
(–)
Normal Loss
|
(at Rs.
15 pu) 30,000
|
2,000
|
(–)
Normal Loss
|
(at Rs.
20 pu) 59,200
|
2,960
|
|
Net
|
10,26,000
|
38,000
|
Net
|
12,78,720
|
26,640
|
|
Effective
Cost per unit = Rs. 10,26,000/38,000 units = Rs. 27 p.u.
|
Effective
Cost per unit = Rs. 12,78,720/26,640 units
= Rs. 48 p.u.
|
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Note:
1.
Gross
Cost of Process A = 3,60,000 + 2,42,000 + 2,58,000 + 1,96,000 = Rs. 10,56,000
2.
Gross
Cost of Process B = 7,99,200 + 2,25,000 + 1,90,000 + 1,23,720 = Rs. 13,37,920
1. Process A Account
|
Particulars
|
Qtty
|
Rs.
|
Particulars
|
Qtty
|
Rs.
|
|
To Basic
Raw Materials
|
40,000
|
3,60,000
|
By
Process A – Stock A/c(at Rs.27 pu)
|
37,000
|
9,99,000
|
|
To
Materials Consumed
|
–
|
2,42,000
|
By
Normal Loss (at Rs. 15 pu)
|
2,000
|
30,000
|
|
To
Direct Wages
|
–
|
2,58,000
|
By
Abnormal Loss (at Rs. 27 pu)
|
1,000
|
27,000
|
|
To POH
|
–
|
1,96,000
|
(See WN
for Rate Computation)
|
|
|
|
Total
|
40,000
|
10,56,000
|
Total
|
40,000
|
10,56,000
|
Note: Output of Process A transferred to Process B
= 80% of 37,000 = 29,600 units at Rs. 27
pu.
Output of Process A directly sold =
20% of 37,000 = 7,400 units, at Sale Price Rs. 37 pu, and Cost being Rs. 27 pu.
2. Process B Account
|
Particulars
|
Qtty
|
Rs.
|
Particulars
|
Qtty
|
Rs.
|
|
To
Process I Stock A/c
|
29,600
|
7,99,200
|
By
Fin.Goods Control (at Rs. 48pu)
|
27,000
|
12,96,000
|
|
To
Direct Materials
|
–
|
2,25,000
|
(See WN
for Rate Computation)
|
|
|
|
To
Direct Labour
|
–
|
1,90,000
|
By
Normal Loss (at Rs. 20 pu)
|
2,960
|
59,200
|
|
To POH
|
–
|
1,23,720
|
|
|
|
|
To
Abnormal Gain (at Rs. 48 pu)
|
360
|
17,280
|
|
|
|
|
Total
|
29,960
|
13,55,200
|
Total
|
29,960
|
13,55,200
|
3. Profit and Loss A/c
|
Particulars
|
Rs.
|
Particulars
|
Rs.
|
|
To
Indirect Expenses
|
4,48,080
|
By
Profit from Sale of Output:
Quantity
× (Price–Cost)
|
|
|
|
|
from
Process A: 7,400 units × Rs. (37 – 27)
|
74,000
|
|
|
|
from
Process A: 27,000 units × Rs. (61 – 48)
|
3,51,000
|
|
|
|
By Net
Loss (balancing figure)
|
23,080
|
|
Total
|
4,48,080
|
Total
|
4,48,080
|
Question:3
Solution:
1. Statement of Equivalent Production
|
Particulars
|
Input
|
Particulars
|
Output
|
Materials
|
Labour
& OH
|
||
|
Op.
WIP
|
8,000
|
Transfer
from:
– Op WIP
|
8,000
|
%
|
E.U
|
%
|
E.U
|
|
–
|
–
|
40%
|
3,200
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||||
|
Fresh
units
|
1,82,000
|
– Fresh
units(b/f)
Total
trans. to Process B
|
1,50,000
|
100%
|
1,50,000
|
100%
|
1,50,000
|
|
1,58,000
|
|
1,50,000
|
|
1,53,200
|
|||
|
|
|
Normal
Loss (5% of 190000)
|
9,500
|
–
|
–
|
–
|
–
|
|
|
|
Abnormal
Loss (b/f.)
|
4,500
|
100%
|
4,500
|
80%
|
3,600
|
|
|
|
Closing
WIP
|
18,000
|
100%
|
18,000
|
70%
|
12,600
|
|
Total
|
1,90,000
|
Total
|
1,90,000
|
|
1,72,500
|
|
1
, 69,400
|
Note: Transfer out of Fresh Units = Total
Transfer Less Transfer out of Opening WIP
= 1,58,000 – 8,000 = 1,50,000 units.
2. Statement of Cost per Equivalent Unit
|
Cost
Element
|
Total
Costs
|
Equivalent
Units
|
Cost
per Equivalent Unit
|
|
|
|
Material 7,37,500
|
|
|
|
|
Less:
|
Scrap
Value of Normal Loss (47,500)
|
Rs. 6,90,000
|
1,72,500
|
Rs. 4
|
|
|
Labour
|
Rs. 3,40,600
|
1,69,400
|
Rs. 2.01 (approx.)
|
|
|
Overhead
|
Rs. 1,70,300
|
1,69,400
|
Rs. 1.01 (approx.)
|
|
|
Total
|
Rs.
12,00,900
|
|
|
3. Statement of Cost Apportionment
|
Item
|
Material
at Rs. 4/eu
|
Labour
at Rs. 2.01/eu
|
OH
at Rs. 1.01/eu
|
Total
|
|
Transfer
to B
|
1,50,000 × 4 = 6,00,000
|
1,53,200 × 2.01 = 3,08,028
|
1,53,200 × 1.01 = 1,54,014
|
10,62,042
|
|
Abnormal
Loss
|
4,500 × 4 = 18,000
|
3,600 × 2.01 = 7,238
|
3,600 × 1.01 = 3,619
|
28,857
|
|
Closing
WIP
|
18,000 × 4 = 72,000
|
12,600 × 2.01 = 25,334
|
12,600 × 1.01 = 12,667
|
1,10,001
|
|
Total
|
6,90,000
|
3,40,600
|
1,70,300
|
12,00,900
|
Note: Total Cost of Transfer = Opening WIP
Cost Rs. 75,000 + Current Value Addition Rs. 10,62,042
= Total Rs. 11,37,042.
4. Process A Account (not required in
Question, prepared as WN Purposes only)
|
Particulars
|
Qtty
|
Rs.
|
Particulars
|
Qtty
|
Rs.
|
|
To
Opening WIP b/d
|
8,000
|
75,000
|
By
Process B – Transfer
(Note 3)
|
1,58,000
|
11,37,042
|
|
To
Direct Materials
|
1,82,000
|
7,37,500
|
By
Normal Loss
(Scrap
Rate Rs. 5 pu)
|
9,500
|
47,500
|
|
To
Direct Labour
|
|
3,40,600
|
By
Abnormal Loss
|
4,500
|
28,857
|
|
To
Production Overheads
|
|
1,70,300
|
By
Closing WIP c/d
|
18,000
|
1,10,001
|
|
Total
|
1,90,000
|
13,23,400
|
Total
|
1,90,000
|
13,23,400
|
Question:4
Solution:
1. EOQ=
where, A = Annual
Requirement of Raw Materials = 60,000 units.
where, A = Annual
Requirement of Raw Materials = 60,000 units.
B = Buying cost per order=Rs.800 per
order(given)
C=Carrying
cost per unit per annum=Rs.10 x 15%=Rs.1.50 p.u.p.a
On substitution, EOQ=8,000 Units
|
2. Re–Order Level
|
= Safety
Stock + Lead Time Consumption
|
|
|
|
=
600 + (60,000 × 10/300) = 600
+ 2,000
|
= 2,600
units
|
|
3. Minimum Level
|
= Safety
Stock (given)
|
= 600
units.
|
|
4. Maximum Level
|
= ROL +
ROQ – (Min. Usage × Min. Lead Time)
= 2,600
+ 8,000 – (Lead Time Consumption assumed 2,000)
|
= 8,600 units.
|
|
5. Average Level
|
= Min
Level + ½ ROQ = 600 + ½ (8,000)
|
= 4,600
units.
|
Question:5
a)
Computation of EOQ
(a)
Purchase
price per component (C1) Rs. 200
(b)
Cost
of an order (C0) Rs.
100
(c)
Annual
cost of carrying one unit 10% of C1
of
inventory is (i × C1) or
Rs. 20
(d)
Total
cost of carrying inventory and ordering per annum Rs. 4,000
(e)
Let
the total annual inventory usage be S.
To
compute E.O.Q. by using the above data we require the figure of total annual
usage of inventory. This can be determined by making use of the following
relation.
=
Rs. 4,000
Or, 
= Rs.
4,000
= Rs.
4,000 
Or, 4,000S
= Rs. 4,000
Squaring
both side
Or, 4,000S = 4,000 × 4,000 Or, S = 4,000 units
Now
E.O.Q. = 
=
=|
Alternatively,
EOQ can also be calculated as below:
Lets EOQ is ‘Q’, then
average holding inventories are Q/2 and annual carrying cost
Q
is
 x Rs.20
= 10Q
2
Now
at EOQ level carrying cost and ordering cost is equal i.e. Rs. 2,000 each.
Rs.2,000
So, 10Q = Rs. 2,000 and Q
=
 = 200
10
Hence, EOQ = 200 units
|
|
(b)
When order size is 2,000 units
|
|
|
No. of orders
|
4,000units
 = = 2
2,000units
|
|
Total
cost
|
= Ordering Cost +
Carrying Cost
|
|
|
= 2× Rs. 100 + 1/2 ×
2,000 units × Rs. 20
|
|
|
= Rs. 200 + Rs. 20,000 = Rs.
20,200
|
|
Extra cost = Rs. 20,200 –
Rs. 4,000
|
= Rs. 16,200
|
|
Quantity
discount received
|
= 2% × 4,000 units × Rs.
200
|
|
|
= Rs. 16,000
|
Note: Different logical notations can be used to express variables
in the formula.
Advice to Management: The quantity discount offer
should not be accepted as it results in additional expenditure of Rs. 200 (Rs.
16,200 – Rs. 16,000)
|
No. of orders
|
=4,000units/4,000units=
1
|
|
Total
cost
|
= 1 × Rs. 100 + 1/2 ×
4,000 units × Rs. 20 = Rs. 40,100
|
(c) When order size is
4,000 units
Extra cost = Rs. 40,100 – Rs. 4,000 = Rs.
36,100
Quantity discount received =
5% × 4,000 units × Rs. 200
= Rs. 40,000
Advice to Management: The quantity discount offer
should be accepted as it result in reducing the total cost of carrying and
ordering of inventory to the extent of Rs. 3,900 [Rs. 40,000 – Rs. 36,100].
Note: White solving this problem, total cost
of inventory and ordering cost per annum, has been considered as
total cost of carrying inventory and ordering per annum.
Question:6
|
S.no.
|
Bills
of material
|
Material
Requisition Note
|
|
1.
|
It is document by the
drawing office
|
It is prepared by the
foreman of the consuming department.
|
|
2.
|
It is a complete
schedule of component parts and raw materials required for a particular job
or work order.
|
It is a document
authorizing Store Keeper to issue Material to the consuming department.
|
|
3.
|
It often serves the
purpose of a Store Requisition as it shown the complete schedule of materials
required for a particular job i.e. it can replace stores requisition.
|
It cannot replace a bill
of material.
|
|
4.
|
It can be used for the
purpose of quotation
|
It is useful in arriving
historical cost only.
|
|
5.
|
It helps in keeping a
quantitative control on materials draw through stores Requisition.
|
It shows the material
actually drawn from stores.
|
Question:7
Normal
spoilage (which is inherent in the operation) costs are included in costs
either by charging the loss due to spoilage to the production order or charging
it to production overhead so that it is spread over all the products. Any value
realized from the sale of spoilage is credited to production order or
production overhead accounts, as the case may be. The cost of abnormal spoilage
is charged to Costing P/L A/C. When spoiled work is the result of rigid
specification, the cost of spoiled work is absorbed by good production while
the cost of disposal is charged to production overhead.
Defectives
that are considered inherent in the process and are identified as normal can be
recovered by using the following method.
• Charged to goods products
• Charged to general overheads
• Charged to departmental overheads
If
defectives are abnormal, they are charged to Costing Profit and Loss Account.
Question:8
Definition of
Inter-Process Profit and Its advantages and disadvantages
In some process industries the
output of one process is transferred to the next process not at cost but at
market value or cost plus a percentage of profit. The difference between cost and the transfer price is known as
inter-process profits.
The
advantages and disadvantages of using inter-process profit, in the case of
process type industries are as follows:
Advantages:
a)
Comparison
between the cost of output and its market price at the stage of completion is
facilitated.
b)
Each
process is made to stand by itself as to the profitability.
Disadvantages:
a)
The
use of inter-process profits involves complication.
b) The system shows profits which are not
realised because of stock not sold out.
Question:9
(i) Equivalent
Production: When
opening and closing stocks of work-in-process exist, unit costs cannot be
computed by simply dividing the total cost by total number of units still in
process. We can convert the work-in-process units into finished units called
equivalent production units so that the unit cost of these uncompleted (W-I-P)
units can be obtained. Equivalent Production units = Actual number of units in
production × Percentage of work completed. It consists of balance of work done
on opening work-in-process, current production done fully and part of work done
on closing WIP with regard to different elements of costs viz., material,
labour and overhead.
(ii)
Inter-Process Profit: In some process industries the output
of one process is transferred to the next process not at cost but at market
value or cost plus a percentage of profit. The difference between cost and the
transfer price is known as inter process profits.
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