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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
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%.
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
3. The total Carrying cost which has to be borne by PTI on both the proposals (current as well as
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

kr do solution upload na tarsao 

A.o.a Rizwan bro mn ny jo calculations k ans pochay thy wo theak nai hn kea?

Dua Khan walaikum assalam... hamein jo assignment ki samjh ai thi us k mutabiq to ans sae e the ap k & i told u...but abhi mdb pe instructor k coments parhe hain where he saying k 10 % & 12% of unit cost nahi lena, inventory pe lna hai.. which means carrying cost of 10% of 12500 & 12% of ab sari calculations change karni pare gi  bht gusa araha hai, sara din waste kerwa diya is assignment ne 

Dua Khan ap apni calculations k mutabiq e karen assignment & bhej too gona do same way..because handout mein EOQ k formula mein CC = carrying cost as %age of unit cost likha hai... so lets follow handout...agar baad mein sol galat karen ge to mail ker k sae kerwa len ge..

but 1 kaam kerna hai... hum jo calculations nikal rahe hain wo per year ki hain..jab k hamein proposal k bare mein suggest kerna hai jo 5yr ka her calculation nikalne k baad usko 5 se multiply ker dein... like EOQ previous proposal ka 1000*5=5000 & cuurent yr ka 1020.6*5=5103....

isi tarha TOC TCC & TC bhi 5yrs ki nikalni hai,,,,

tariq bhai solution file upload kr dain... we just get idea from that....plzz

tariq bhai plz post the idea solution.

ordr quantity ki value kya hi plz tell


total ordering cost ka formula bta do anybody

TOC = Number of Orders * Cost Per Order


Number of orders = RU / EOQ 

tariq bhai total ordering cost formula bta dain plz



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