1.

Material
Ques. 1.
Two components A and B are used as follows :
Normal usage 60 per week each
Minimum usage 30 per week each
Maximum usage 90 per week each
Re-ordering quantity A — 500; B — 800
Re-ordered period A — 3 to 5 weeks; B — 2 to 4 weeks
Calculate for each component:
(a) Re-ordering level; (b) Minimum level; (c) Maximum level; (d) Average stock level.
Comment briefly on the difference in the levels for the two components.

Ques. 2.
From the following information calculate re-order level, maximum level and minimum level of stock:
Re-order quantity 6,000 units
Minimum stock level to allow for emergencies 5 weeks
Average lead time 4 weeks
Average consumption rate per week 500 units
Minimum consumption in 4 weeks 1,600 units

Ques. 3.
A manufacturing company produces a special product ‘Sorbina’ the monthly demand for which is 500 units. The
following particulars are available in respect of the material used for manufacturing the product:
Cost of placing an order ₹ 120.
Annual carrying cost per unit ₹ 12.
Normal usage 60 units per week.
Minimum usage 30 units per week.
Maximum usage 90 units per week.
Delivery period 4 to 6 weeks.
Compute from the above :
(a) Re-order quantity ; (b) Re-order level; (c) Minimum level; (d) Maximum level; (e) Average stock level.

Ques. 4.
If the minimum stock level and average stock level of raw material A are 4,000 and 9,000 units respectively, find out
its ‘re-order quantity’.

Ques. 5.
From the details given below, calculate :
(i) Re-ordering level;
(ii) Maximum level;
(iii) Minimum level;
(iv) Danger level.
Re-ordering quantity is to be calculated on the basis of following information :
Cost of placing a purchase order is ₹ 20.
Number of units to be purchased during the year is 5,000.
Purchase price per unit inclusive of transportation cost is ₹ 50.
Annual cost of storage per unit is ₹ 5.
Details of lead time : Average 10 days, Maximum 15 days, Minimum 6 days. For emergency purchases 4 days.
Rate of consumption : Average 15 units per day, Maximum 20 units per day.

Ques. 6.
K Ltd provides you the following information:
(a) ROL: 64,000 units; ROQ: 40,000 units; Minimum Stock: 34,000 units; Maximum Stock: 94,000 units
(b) Average lead-time in the past has been 2.5 days.
(c) The difference between maximum and minimum lead times is 3 days
Determine tire usage rates and lead times (maximum & minimum).

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Ques. 7.
A manufacturer buys certain equipment from outside suppliers @ ₹ 30 per unit. Annual needs are 800 units. The
following further data are available :
Annual return on investment 10% ;
Rent, insurance, taxes etc., per unit per annum ₹ 1;
Cost of placing an order ₹ 100.
Determine the economic order quantity.

Ques. 8.
From the following particulars relating to inventory find out: (a) how much should be ordered each time, (b) when
should the order be placed, (c) what should be the ideal inventory level immediately before the delivery of material
ordered is received, (d) how many times orders for EOQ should be placed in a year.
Annual consumption — 12,000 units (in 360 days).
Cost per unit — ₹ 1.
Ordering cost — ₹ 12 per order.
Inventory carrying charge — 20%.
Normal lead time — 15 days.
Safety stock — 30 days consumption.

Ques. 9.
The Ganges Pump Company uses about 75,000 valves per year and the usage is fairly constant at 6,250 per month.
When bought in quantities, the valves cost ₹ 1.50 per unit and the carrying cost is estimated at 20% of average
inventory investment on the annual basis. The cost to place an order and process the delivery is ₹ 18.
It takes 45 days to receive delivery from the date of an order and a safety stock of 3,250 valves is desired.
You are required to determine :
(a) the most economic order quantity and frequency of orders in a year; (b) the order point; and
(c) the most economic order quantity, if the valves cost ₹ 4.50 each instead of ₹ 1.50 each.

Ques. 10.
Suman Ltd. buys in lots of 500 boxes which is a 3 month supply. The cost per box is ₹ 125 and the ordering cost is
₹ 150. The inventory carrying cost is estimated at 20% of unit value.
(i) What is the total annual cost of the existing inventory policy?
(ii) How much money could be saved by employing the economic order quantity?

Ques. 11.
The annual requirement of an item is 12,000 units, each costing ₹ 6. Every order costs ₹ 200 at release and inventory
carrying charges are 20% of the average inventory per annum.
Find out : (i) economic order quantity and corresponding total inventory cost (including item costs); (ii) whether the
item should be purchased in lots of 6,000 units at a time, if the price per unit is reduced by 5% for this quantity.

Ques. 12.
Your factory buys and uses a component for production at ₹ 10 per piece. Annual requirement is 2,000 pieces. Carrying
cost of inventory is 10% per annum and ordering cost is ₹ 40 per order. The purchase manager proposes that, as the
ordering cost is very high, it is advantageous to place a single order for the entire annual requirement. He also says
that, if we order 2,000 pieces at a time, we can get a 3% discount from the supplier.
Evaluate this proposal and make your recommendation.

Ques. 13.
(a) The purchase department of your company has received an offer of quantity discounts on its orders of materials
as under :
Price per ton (₹) Tons ordered
1,200 less than 500
1,180 500 and less than 1,000
1,160 1,000 and less than 2,000
1,140 2,000 and less than 3,000
1,120 3,000 and above

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The annual requirement for the material is 5,000 tons. The ordering cost per order is ₹ 1,200 and the stock holding
cost is estimated at 20% of material cost per annum.
You are required to compute the most economical purchase level.
(b) What will be your answer to the above question, if there are no discount offered and the price per ton is ₹ 1,500.

Ques. 14.
M/s. Tubes Ltd. are the manufacturers of picture tubes of T.V. The following are the details of their operation during
2019:
Average monthly market demand 2,000 tubes
Ordering cost ₹ 100 per order
Inventory carrying cost 20% per annum
Cost of tubes ₹ 500 per tube
Normal usage 100 tubes per week
Minimum usage 50 tubes per week
Maximum usage 200 tubes per week
Lead time to supply 6 — 8 weeks
Compute from the above:
(1) Economic order quantity. If the supplier is willing to supply quarterly 1,500 units at a discount of 5%, is it worth
accepting?
(2) Maximum level of stock.
(3) Minimum level of stock.
(4) Re-order level of stock.

Ques. 15.
C Ltd. produces a product which has a monthly demand of 4,000 units. The product requires a component X which is
purchased at ₹ 20. For every finished product, one unit of component is required. The ordering cost is ₹ 120 per order
and the holding cost is 10% p.a.
You are required to calculate :
(i) Economic order quantity.
(ii) If the minimum lot size to be supplied is 4,000 units, what is the extra cost the company has to incur?
(iii) What is the minimum carrying cost, the company has to incur.

Ques. 16.
Sachin Ltd. furnishes the following information :
(i) Consumption — 300 units per quarter.
(ii) Cost per unit ₹ 40.
(iii) Cost of processing an order ₹ 600.
(iv) Obsolescence 15%.
(v) Insurance on inventory 25%.
Compute:
(a) Economic order quantity ;
(b) No. of orders per year ;
(c) Time between two consecutive orders.
A supplier offers a discount of 2% on a purchase of 600 units. Should it be accepted?

Ques. 17.
NKR Ltd., manufacturers of a special product, follows the policy of EOQ (Economic Order Quantity) for one of its
components. The component’s details are as follows :
₹
Purchase price per component 200
Cost of an order 100
Annual cost of carrying one unit in inventory 10% of purchase price
Total cost of carrying inventory and ordering per annum 4,000
The company has been offered a discount of 2% on the price of the component provided the lot size is 2,000
components at a time.

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You are required to :
(a) Compute the EOQ ;
(b) Advise whether the quantity discount offer can be accepted (Assume that the inventory carrying cost does not vary
according to discount policy);
(c) Would your advise differ if the company is offered 5% discount on a single order?

Ques. 18.
Modem Manufacturing Company, Kolkata, purchased a material of 20 tons from a mining company.
The following data is available for the lot of material purchased :
(i) Invoice price of material @ ₹ 2,000 per ton ;
(ii) Trade discount @ 20% on invoice price;
(Hi) Excise duty @ 10% on invoice price ;
(iv) Sales tax @ 10% ;
(v) Freight and insurance @ 2% ;
(vi) Other charges for delivery @ ₹ 100 per ton ;
(vii) Cost of containers @ ₹ 20 per box of 1 quintal;
(viii) Cost of loading and unloading @ 1% of total cost.
Compute total material purchase cost and cost per ton to Modem Manufacturing Company.

Ques. 19.
The following details are available in respect of a consignment of 1,250 kg. of material X:
(a) Invoice price ₹ 20 per kg.
(b) Excise duty 25% on invoice price
(c) Sales tax 8% on invoice price including excise duty
(d) Trade discount 10% on invoice price
(e) Insurance 1% of aggregate net price
(f) Delivery charges ₹ 250
(g) Cost of containers @ ₹ 60 per container for 50 kg. of material. Rebate is allowed @ ₹ 40 per container if returned
within six weeks, which is a normal feature.
(h) One container load of material was rejected on inspection and not accepted.
(i) Cost of unloading and handling @ 0.25% of the cost of materials ultimately accepted.
On the basis of above you are required to find out the landed cost per kg. of material X.

Ques. 20.
In a factory component A is used as follows :
Normal usage 50 kg. per week
Minimum usage 25 kg. per week
Maximum usage 75 kg. per week
Re-order quantity 300 kg.
Re-order period 4 to 6 weeks.
Calculate for component A:
(i) Re-order Level; (ii) Maximum Level; (iii) Minimum Level; and (iv) Average Stock Level.

Ques. 21.
Two components A and B are used as follows:
Normal usage 60 units per week each
Minimum usage 40 units per week each
Maximum usage 80 units per week each
Re-ordering quantity A — 500 units
B — 400 units
Re-order period A — 2 to 4 weeks
B – 4 to 6 weeks

Calculate for each component:

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Ques. 22.
About 200 units are required per quarter. ₹ 100 per order is incurred for placing an order. The inventory carrying cost
per unit is ₹ 4. The re-order level is 350 units. The minimum usage is 25 units per week and the re-order periods is 4
to 6 weeks.
Compute : (a) Economic Order Quantity (b) Maximum Level.

Ques. 23.
About 50 items are required every day for a machine. A fixed cost of ₹ 50 per order is incurred for placing an order.
The inventory carrying cost per item amounts to ₹ 0.02 per day. The lead period is 32 days.
Compute:
(i) Economic Order Quantity; (ii) Re-order Level; (iii) Number of orders per year (iv) Time lag between two purchases
and (v) Associated Cost.

Ques. 24.
A steel rolling mill uses a particular type of iron costing ₹ 500 per ton. Its annual consumption of that iron is 200 tons.
The cost of placing an order is ₹ 100 and the rate of interest is 10% p.a. Work out the optimum quantity to be ordered
by the mill.

Ques. 25.
A manufacturer uses 75,000 units of a particular material per year. The material cost is ₹ 1.50 per unit and the carrying
cost is estimated to be 25% p.a. of average inventory cost. The cost of placing an order is ₹ 18.
You are required to determine the Economic Order Quantity and frequency of orders p.a.

Ques. 26.
The annual demand for an item is 3,200 units. The unit cost is ₹ 6 and inventory carrying charges are 25% per annum.
If the cost of one procurement is ₹ 150, determine (i) Economic Order Quantity j; (ii) No. of orders per year; (iii) Time
between two consecutive orders.

Ques. 27.
The following information relating to a type of raw material is available :
Annual demand 2,400 units
Unit price ₹ 2.40
Ordering cost per order ₹ 4.00
Storage cost 2% per annum
Interest rate 10% per annum
Lead time Half month
Calculate Economic Order Quantity and Total Annual Inventory Cost in respect of the particular raw material.

Ques. 28.
(a) From the following information, find out the Economic Order Quantity :
Annual consumption 12,000 units (360 days)
Cost per unit ₹1
Ordering cost ₹ 12 per order
Inventory carrying cost 24%
Normal lead time 15 days
Safety stock 30 days’ consumption
(b) Also find out: (i) when should the order be placed; and (ii) what should be the ideal inventory level immediately
before the ordered material is received?

Ques. 29.
A factory requires 1,500 units of an item per month, each costing ₹ 27. The cost per order is ₹ 150 and the inventory
carrying charges work out to 20% of the average inventory.
Find out the Economic Order Quantity and the number of orders per year.
Would you accept a 2% price discount on a minimum supply quantity of 1,200 units?
Compare the total costs in both the cases.

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Ques. 30.
From the following particulars calculate the best quantity to be ordered :
Ordering Quantity (in kg.) Price per kg.
Less than 500 ₹ 10.00
500 and less than 1,600 ₹ 9.60
1,600 and less than 4,000 ₹ 9.40
4,000 and less than 8,000 ₹ 9.20
8,000 and above ₹ 9.00
The annual requirement of the material is 8,000 kg. Stock holding (carrying) cost is 20% of material cost per annum.
Ordering (re-ordering) cost per order is ₹ 10.

Ques. 31.
The purchase department of your organisation has received an offer of quantity discounts on its orders of materials
as under:
Price per ton (₹) Tons
1,400 less than 500
1,380 500 and less than 1,000
1,360 1,000 and less than 2,000
1,340 2,000 and less than 3,000
1,320 3,000 and above
The annual requirement of the material is 5,000 tons. The delivery cost per order is ₹ 1,200 and the annual stock
holding cost is estimated at 20 per cent of the average inventory.
The purchase department wants you to consider the following purchase options and advise which among them will
be the most economical ordering quantity, presenting the relevant information in a tabular form.
The purchase quantity options to be considered are 400 tons, 500 tons, 1,000 tons, 2,000 tons and 3,000 tons.

Ques. 32.
The following data are available in respect of material X for the year ended 31st March, 2019:
₹
Opening stock 90,000
Purchases during the year 2,70,000
Closing stock 1,10,000
Calculate :
(i) Inventory Turnover Ratio; and
(ii) The number of days for which the average inventory is held.

Ques. 33.
From the following data for the year ended 31st December, 2019 calculate the Inventory Turnover Ratio of the two
items, A and B, and put forward your comments on them.
Material A Material B
₹ ₹
Opening stock 1.1.19 20,000 18,000
Purchases during the year 1,04,000 54,000
Closing stock 31.12.19 12,000 22,000

Ques. 34.
From the following data for the year ending 31st March, 2019, compute :
(a) Cost of Materials Consumed;
(b) Average Inventory;
(c) Inventory Turnover Ratio.
Material A Material B
₹ ₹
Opening stock 40,000 36,000
Purchases during the year 2,08,000 1,08,000
Closing stock 24,000 48,000
Which of the two items of inventory is fast moving?

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Ques. 35.
V Ltd has received an offer of quantity discount on its order of materials as under:
Price per tonne ₹ 9,600 ₹ 9,360 ₹ 9,120 ₹ 8,880 ₹ 8,640
Tonnes Number Less than 50 50 and less 100 and less 200 and less 300 & above
than 100 than 200 than 300
The annual requirement for the material is 500 tonnes. The ordering cost per order is ₹12,500 and the stockholding
cost is estimated at 25% of the material cost per annum.
(1) Compute the most economical purchase level.
(2) Compute EOQ if there are no purchase discounts and the price per tonne is ₹ 10,500.

Ques. 36.
Toffies Ltd sells "Sweety" chocolate bars. These are sold in packets of 12 bars at ₹ 20/- per packet. The demand for the
brand is constant at 2,000 packets per month. Each packet cost the Company ₹ 10 from the manufacturer and a lead-
time of 3 days is involved in it. Ordering Cost is Re. 1.20 per order and the holding cost is 10% p.a.
1. Calculate: (i) EOQ (ii) Total of holding and ordering costs per annum.
2. Assume that the present stock level is 200 packets and that no buffer stocks are kept. When should the next order
be placed? (Take 1 year = 360 days)

Ques. 37.
Veerabahu Ltd Lises 50 containers of acid per annum at their plant. It has been calculated that a purchase order costs
₹10 to process and that the cost of stockholding is ₹ 1 per container per annum. Suppliers of acid offer quantity
discounts as laid put below :
Number of Containers 1-9 10-49 50-99 100 & above
Discount per unit (₹ ps) NIL 0.50 1.00 1.60
Compute EOQ in the above situation.

Ques. 38.
The quarterly production of a Company's product which has a steady market is 20,000 units. Each unit of a product
requires 0.5 kg of raw material. The cost of placing one order for raw material is ₹ 100 and the inventory carrying cost
is ₹ 2 per annum. The lead time for procurement of raw material is 36 days and a safety stock of 1,000 kg of raw
material is maintained by the Company. The Company has been able to negotiate the following discount structure
with the supplier:
Order Qty in kgs Upto 6,000 6,000- 8,000 8,000- 16,000 16,000 - 30,000 30,000 - 45,000
Discount in ₹ Nil 400 2,000 3,200 4,000
1) Calculate the Re-order Point taking 30 days in a month.
2) Prepare a statement showing the total cost of procurement and storage of raw materials after considering the
discount if the company elects to place 1, 2, 4 or 6 orders in a year.
3) State the number of orders which the Company should place to minimize the costs after taking EOQ into
consideration.

Ques. 39.
M/s Fujitech Ltd. is the manufacturer of monitors for PCs. The following are the details of Its operation during 2019:
Ordering cost ₹ 1,000 per order
Inventory carrying cost 20% per annum
Cost of monitors ₹ 3,500 per monitor
Normal usage 425 monitors per week
Minimum usage 49 monitors per week
Maximum usage 710 monitors per week
Lead time to supply 3-5 weeks

Compute from the above: