ASSIGNMENT # 01
COST & MANAGEMENT ACCOUNTING (MGT402)
Learning Objectives: The students are expected to learn and apply the economic order quantity model in different situations.
JIF Manufacturing buys leather sheets for making ladies hand bags and gents wallets from its suppliers. The leather has no color on them when bought. The assembly plant dies the leather with colors like black, brown, red and cream. Then it sews the colored bags and wallets. Finally leather bags and wallets are polished with an agent that depends on the color of the product. Basically there are three operations in the plant: Coloring, Stitching and Polishing. The activity times and set up times for these operations are given in minutes as follows:
Operation Coloring Stitching Polishing
Activity time 0.25 0.20 0.15
Set up time 30 20 45
Leather bags and wallets assemblies are processed in batches in all operations. The batch sizes are kept the same at all operations. Before a batch goes through an operation, the plant must set up the machines for that operation. For this purpose JIF Manufacturing requires 1,500 leather sheets per month. The cost of each leather sheet is Rs.27. The cost per order is Rs. 150 and inventory carrying charge works out to 20% of the average inventory.
a) How many leather tops can be colored in an hour with a batch size of 40?
b) Find the economic order quantity and ascertain the number of orders to be placed per year?
c) Would the Company accept a 2% price discount on supply of the 1,200 leather sheets
1. Y including Total inventory Cost -
its because it is the cost of purchasing the inventory from the supplier - u give this much amount to the supplier when u purchase goods from him. If the supplier gives u price discount tu ap usko kam paisay do gay. But jo supplier apko price discount ni deraha (as in the case of 1000 sheets) tu usko ap puray paisay den gen. ye net benefit apko har haal me include krna hai chahay book me dia ho ya ni.
Assignments and GDB are not exactly from the book. u need to search over internet to solve them. islye if u use the table for part c, include total inventory cost also like its done in the solution file uploaded by sir tariq.
2. Why not apply discount on total cost:
i was also confused about this but if u do like this then this 2% discount will also be applied on the ordering cost mtlb cost per order = 150 aur agr ap 2% discount total cost pr apply krenge tu cost per order bi = 150 x 0.98 = 147 hojayegi. Is pr apply krke dekhna discount tu ans ayega something 481,660 which is not correct because Ordering cost pr discount ni milraha islye aisa ni krte aur sirf unit price (27) per discount apply krte hen.
3. Math type use krskte hen for formula
4. Computer Calculator mein power use krne klye 'Click View' then "Scientific" then "write the no." then "click x^y" now "write the power". If the power is 2 or 3 then u can use "x^2" or x^3"
dear maham mera EOQ calculate krny pe 100 aa raha kia karun m much confused?
Sir tariq ne jo word ki file attach ki hai plz see that. it should be 1000
Annaual Required Units=18000
Price Per Unit=27
Per Order Cost=150
Carry Cost=20% of average inventory held
Annual Required Unit = 18000 EOQ= 1000 => No of Order = 18000/1000 = 18
Cost Per Order = 150. Total Order Cost = 18*150 = 2700
holding Cost = 20% of average inventory held..
Average Inventory = EOQ/2 (bcoz 1000 ka order kia khatam hue phir order kia, sara saal... to on average 1000/2 stock min raha
Holding Cost = 20% x (1000/2) x 27 = 2700
Inventory Cost = 18000 * 27 = 486000
TOTAL COST = 2700 + 2700 + 486000 = 491400
Discounted Price = 27 ( 1 - 2%) = 26.46
No of Order = 18000/1200 = 15
total order cost = 15 x 150 = 2250
Holding Cost = 20% of avrg inventory = 20% x (1200/2) x 26.46 = 3175.2
Inventory cost = 18000 * 26.46 = 476280
TOTAL COST = 2250 + 3175.2 + 476280 = 481705.2
NET BENEFIT = 491400 - 481705.2 = 9694.8 = 9695
YOU CAN ONLY ACCOUNT FOR ORDER + HOLDING COST. LEAVE INVENTORY...
BUT TAKE THE DISCOUNTED EFFECT THAN.....
BCOZ WE SAVE 0.54 PER UNIT COST... TOTAL SAVING., 18000*.54= 9720
TAKE THE SAVING EFFECT WHEN NEGLACTING INVENTORY.. OR CALCULATE AS A WHOLE COST ... LIKE I DID ABOVE....
again think about COST BENEFIT ANALYSIS ...
humin kia cost pery gi 1200 ki... or 1200 ka order deny se inventory cost min kitni saving ho gi...
hmary pass cost saving option EOQ hai, right? jismin kam se kam order and holdi cost ka combination banta hai,,,, right?
humin 2% discount ki offer hui... per us se hmara optimal solution hai wo kam se kam order and carry cost ka (EOQ) wo disturb hua,,, per 2% se inventory cost min jo saving hui wo bhi to leni hai,,,,, 18000 unit, 150OC and CC... is pe 1000 hi ki ordering pe less cost aye gi, 1100 ya 900 kero to cost berh jae gi...,, thats done..... but ager 1200 kero to lazmi bat hai cost zeyada hi aye gi... bcooz optimal solution 1000 hai per 2% ka kia??? usko bhi to account for kerna hai na.,... EOQ use kero to 18000 Annual unit 27 rupay ky hesaab se parin gy,,,, ager 1200 unit us supplier se lo to 2% discount deta hai wo,... matlab saving,,,, matlab 26.46 ky hesaab se 18000 unit..... matlab per unit 0.54 bacchay ga... jo bachay ga us se jo disturbance hui hai 1200 unit ki holding and order cost min, usko adjust kero.... overall cost to kam hi ho jae gi
EOQ can be drived from three option.... Plotting cost curves on graph .... table.... or EOQ formula.... they are same... the only gives u EOQ... but part c min decision making kerni hai,,, its cost and benefit analysis...............
TOTAL ANNUAL COST = 2700 + 2700 = 5400 ok?
TOTAL ANNUAL COST = 2250 + 3175.2 = 5425.2 ok????
per jb hum 1200 wali option lain gy to humin 2% discount hai... matlab unit price less ho jae gi. 27 se 26.46 ho jae gi . matlab 0.54 ki buchat. saal min 18000 unit pe kitni bachat hui .... 18000x0.54 = 9720
5425.2 ki cost pari per 9720 bach bhi ho gye... right????
cost nekal ky ulta 4994.8 ka faida ho ga saal min (5425.2 - 9720 )
Zawar Hussain thanks for sharing
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ASSIGNMENT # 01 Solution
COST & MANAGEMENT ACCOUNTING (MGT402)
1 piece coloured in 0.25 minutes
For 1 batch of 40 pieces= 0.25 x 40= 10 minutes
Total time for 1 batch= 30+10= 40 minutes
Leather tops coloured in 1 minute= 40/40= 1 leather top
In 1 hour= 1 x 60 minutes= 60 leather tops can be coloured
AR= Annual Requirement= 1500 x 12= 18000
OC= Cost per order= 150
CC= Carrying cost= 27 x 20%= 5.4
By putting values in above formula,
EOQ= 1000 units
Number of orders= Annual Requirement/ EOQ
Number of orders= 18000/1000= 18 orders per year
Total ordering cost= cost per order x number of orders
= 150 x 18
Total ordering cost= 2700
Total Carrying cost= (EOQ/2) x carrying cost
= (1000/2) x 20% x 27
Total carrying cost= 2700
Total inventory cost= 27 x 18000= 486000
Total cost= 486000+2700+2700= 491400
At 2% discount:
Now quantity is 1200
So number of orders will be = 18000/1200= 15 orders per year
Total ordering cost= 150 x 15 = 2250
Total carrying cost = (1200/2) x 20% x (27 x 98%) = 3175.2
Total inventory cost= 18000 x (27 x 98%) = 476280
Total cost= 476280 + 2250 + 3175.2 = 481705.2
Difference= 491400- 481705.2= 9694.8
Hence by availing discount there is benefit of Rs. 9695
So company should accept discount offer.
oh ho,,, sorry i was busy! ab to assignment date bhi gai...
ummm wese i think log pori discussion nahin perhty is leye confuse rehty hain, direct answes waly replies ky badlay, ap log page 1st se shoro hua kerin ......
anyway, good luck :)