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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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Replies to This Discussion

Discuss the idea please............

Pls share you ideas

EOQ=1000 IN BOTH CASES

TOTAL ORDERING COST=25000 AND 39000

TOTAL CARRYING COST=312500 AND 610352

SO as a cost manager it is expensive to get 25% as it costs more Ordering Cost & Carrying Cost.

Solve by yourself and if the answers are not correct then share the correct answers. Thanks

Previous Contract
Order
 Qty
Required
 Units
No of
Orders
Per Order
Cost
 Total Ordering
Cost 
 Average Ordering
Qty 
 Carring Cost Per Unit  Total Carring
Cost
Total Cost
2000 12500 6.25 2000                  12,500       1,000                       50      50,000         62,500
1800 12500 6.94 2000                  13,889           900                       50      45,000         58,889
1500 12500 8.33 2000                  16,667           750                       50      37,500         54,167
1200 12500 10.42 2000                  20,833           600                       50      30,000         50,833
1000 12500 12.50 2000                  25,000           500                       50      25,000         50,000  EOQ 
700 12500 17.86 2000                  35,714           350                       50      17,500         53,214
500 12500 25.00 2000                  50,000           250                       50      12,500         62,500
300 12500 41.67 2000                  83,333           150                       50         7,500         90,833
                 
Proposal Contract
Order
 Qty
Required
 Units
No of
Orders
Per Order
Cost
 Total Ordering
Cost 
 Average Ordering
Qty 
 Carring Cost Per Unit  Total Carring
Cost
Total Cost
1300 12500 9.62 2000                  19,231           650                       60      39,000         58,231
1270 12500 9.84 2000                  19,685           635                       60      38,100         57,785
1250 12500 10.00 2000                  20,000           625                       60      37,500         57,500
913 12500 13.69 2000                  27,382           457                       60      27,390         54,772  EOQ 
875 12500 14.29 2000                  28,571           438                       60      26,250         54,821
625 12500 20.00 2000                  40,000           313                       60      18,750         58,750
500 12500 25.00 2000                  50,000           250                       60      15,000         65,000
                 

koi soluion b tu upload kr dy na

any body uplaod solution file

anybody kam az kam discuss to kero....

smj aye to discuss karain

plz smja dain

Please Discuss here about this assignment.Thanks

Our main purpose here discussion not just Solution

current proposal me Required Units or Carrying cost ki kiya value li jaye gi?

12500 me 25% add krna hoga?
12500*25% = 3125
now current proposal RU = 12500+3125 = 15625
and carrying cost = 10% + 2% = 12% for current proposal
kia yehi value li jayen gi?

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

If the solutions are not correct then please share the correct answers

 

dear Anjum My solution is slightly different, 

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%. Thanks and Good luck 

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