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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

main jo solve kia hay same hay but 5 saal k kia hoa?

khalid sb 62500 for previous & 78125 for current lene hain... peeche pages per meine post kiya to hai...abhi bhi ap ko doubt hai kia???? :/ 

hayeee ALLAH.....  me :( 19 pages ki thread parh k bhi ap abhi bhi wahin atki hain :/ hamein 5yrs ki calculation kerni hain.... so required units for previous 62500 & required units for current 78125 lene hain....

and total cost = total ordering cost + total carrying cost only....

hun v samjh na ae te fer ALLAH da hukam 

5 sal ka 5 sal baad he pata chaly ga.......... ab jo kuch bhe hay assignment submit kar do.......is se best solution aur kuch nahi ho ga

POSTING SOLUTION ONCE AGAIN.. & PLEASE NOTE THAT WE HAVE TO CALCULATE FOR 5YRS AS EACH PROPOSAL DURATION IS 5YRS & THEY HAVE ASKED US TO CALCULATE EACH PROPOSAL"S VALUES.

Here is what I think, since we have a bumper cotton crop, we will not increase any other prices except for the ones asked by the question. 

That way:

 

Per Unit Cost

Required Units per 5yrs

Ordering Cost for One Order

Carrying Costs

Previous Contract

500

12,500*5=62500 units

2000

10%

Proposed Contract

500

62500*25%=62500+15625=78125 units

2000

12%

Moving on , 

EOQ = [(2xRUxOC)/(UCxCC%)]^1/2

Total Ordering Cost= Number of Orders * Cost Per Order

where number of orders = required units / EOQ

Total Carrying Cost    = Average Ordering Quantity * Carrying Cost per Unit

where Average Ordering Quantity = Ordering Quantity / 2 

and Carrying Cost per Unit = Unit Cost * CC% 

Total Cost = Total Ordering Cost x Total Carrying Cost

Per Unit Cost = Total Cost/Order Quantity 

 final calculations: 

 

EOQ

Total Ordering Cost

Total Carry Cost

Total Cost

Per Unit Cost

Previous Contract

2,236.1

56,000

55,905

111,905

50

Proposed Contract

2,282.2

68,460

68,466

136,926

60




 

 

 

so previous proposal is suitable for PTI.

now thats what i understood of the assignment...and i'm also submitting the same...rest ALLAH knws better  good luck to everyone.. thank you 

data is given & also formulas are given...just put data values in those formulas & step by step calculate kerte jaen.. phir jo final answers aen unko mere diye gae final answers se match ker lein....its very simple & jst need 10mins of ur concentration....so sit relax, concentrate & solve it. THANK YOU 



hy dear i agreed with u .......... bt how u calculate the total ordering cost according to ur given formulas?? 

TOC = Number of Orders * Cost Per Order

previous proposal

Number of orders = RU / EOQ = 62,500 / 2,236.1 = 28

TOC = 28 * 2,000 = 56,000

isi tarah current proposal ka....

POSTING SOLUTION ONCE AGAIN.. & PLEASE NOTE THAT WE HAVE TO CALCULATE FOR 5YRS AS EACH PROPOSAL DURATION IS 5YRS & THEY HAVE ASKED US TO CALCULATE EACH PROPOSAL"S VALUES.

Bhi ye 5 years ka matlab samjh nai aya .
please is ko toras detail say bata dain.ya koi idea show kar din.
Please time kam hai.

book main 12500 say calculae hay lakin 5 sal ka iktha calculate h ga yani 62500 baqi rizwan ka solution follow krlain

SAJID IQBAL abhi to share kia hai solution idea... previous page per dekhein....

bhai 5yrs ka chakar ye hai k assignment mein unho ne hamien proposal ki values nikalne ka kaha hai & proposal 5yrs hai...so hum 5yrs ka caclutae karen ge... required units 62500 & 78125 ho jaen ge.....

thanks rizwan to share

JAZAK ALLAH :) bas duaon mein yaad rakhein 

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