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ASSIGNMENT QUESTION
PUNJNAD Textile Industries (PTI) – a privately owned textile spinning unit is engaged in yarn manufacturing
since its incorporation. The unit produces high quality yarn which is sold out immediately like a hot cake. 5
years back, Mr. Entrepreneur - the owner of PTI had signed a contract with a local cotton supplier – Mr.
Supplier for supplying fine quality cotton bails to PTI as per specified requirement for five years at a cost of
Rs. 500 per bail. PTI estimated its requirement of 12,500 cotton bails per year for smooth operations. Both the
owner and the supplier were happy for signing the contract and a feeling of earning the good amount of profit.
Mr. Entrepreneur also estimated Rs. 2,000 as cost on issuing every new order and 10% as carrying and storage
cost associated with the inventory.
Mr. Supplier successfully supplied the cotton bails to PTI for 4 years but in 5th year of the contract, due to
heavy flood, cotton crops could not be reaped at full. But, due to the signed contract with PTI, Mr. Supplier
managed to supply cotton bails to PTI as per the agreed specification and completed the contract period
successfully.
This year, due to bumper cotton crop in the region, Mr. Supplier has desired to renew the cotton supply
contract with the condition to supply 25% extra bails over the previous contract for the next 5 years. Mr.
Entrepreneur as satisfied with the cotton quality supplied earlier is considering this new option and has called
upon his manager costing – Mr. Management Accountant to compare the proposal with the contract just
ended. The manager has advised him to reject the proposal as extra quantity purchased would increase the
carrying and storage cost by 2%.
REQUIREMENT:
Being a student of cost & management accounting you are asked to calculate the following:
1. The most economical order quantity in case of both the proposals (current as well as previous)
2. The total ordering cost which has to be borne by PTI on both the proposals (current as well as
previous)
3. The total Carrying cost which has to be borne by PTI on both the proposals (current as well as
previous)
4. Using the order quantities, total ordering cost and total carrying cost calculated above; calculate the
total cost for both proposals. Also suggests the most suitable proposal for PTI on total cost basis.

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kanwal ap next page per jaen solution wahan upload ho gaya hai,,,,

 Nadia thanks 

Note @ All: You don’t need to go any other site for this assignment/GDB/Online Quiz solution, Because All discussed data of our members in this discussion are going from here to other sites. You can judge this at other sites yourself. So don’t waste your precious time with different links.

jb supply increase ho gi 25% to cc cost bi increase kr jaye gi 

think about it plz mnz cc 12.5 ho jaye gi

THANXXXXXXXXXXXXXXXXXXXXXXXXXXXXX NADIA. ALLAH APKO HMESHA KHUSH RKHY AMEN.. AND GHULAM MUSTFA NADIA KI CALCULATIONS THEK HAIN. BAS PROPOSED CONTRACT KI ORDERING KI CALCULATION  MAIN CONFUSION HAI BAKI SB THEK HAIN BILKUL.

haaan sorry wo sai kr laina upr sai solution de dia hai.

@ghulam mustafa, Question ksi aur increase ka nai keh raha, sirf supply aur CC ki baat kr ra hai. Wo keh raha hai supply 25% increase kare ge hence 12,500 ---> 15,625 ho jati hai.

Since 12,500 ka 25% = 3125

hence 3125 + 12500 = 15,625

And CC wo sirf 2% increase ka bol raha hai, jo k 10% ----> 12% hojai ge. 

jb stock increase kre ga to i think es ki cc increase ho jaye gi 2% to manager ne calculation kr k btyi hi k ho jaye gi rest hm ne batani hi k kitni ho gi

koi plz sahi aur pura solution upload krdo im not feeling well, plz help me out. jo solution sahi hai wo upload krdo koi mje kuch smj nahi araha plz its a humble request

Kanwal next page pe perfect solution meine post kiya hai...ap chk ker lo 

salaam, Nadia plz eska solution he upload kr do aj last date hai plzzzzzzz

The economic order quantity (Previous Proposal)

EOQ=1000

The economic order quantity (Current Proposal)

EOQ=1000

Total ordering cost (Previous Proposal)

25000 

Total ordering cost (Current Proposal)

39062.5

Total carrying cost (Previous Proposal)

312500 

Total carrying cost (Current Proposal)

610351.5625 

Total cost (Previous Proposal)

337500

Total cost (Current Proposal)

649414.0625

Previous proposal is suitable proposal for PTI

total OC ACTUAL = 3125

Total OC PROPOSED = 3906.25

Total CC Actual = 50000

Total CC Proposed = 5000

Total Cost Present = 53125

Total Cost Proposed = 53906.25 

If we want to counter check this with manager statement for increase of 2 % , here the difference between two Total Cost is exactly 2%.

Annual consumption=12500

Cost to place one order=2000

Cost per unit=500

carrying cost=10%

And in case of 25% increase

Annual consumption=15625 after 25% increase

Cost to place one order=2500 after 25% increase

Cost per one cottom bail=625 after 25% increase

Carrying cost=12.5% after 25% increase

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