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5 marksMaterial Control and Inventory Valuation

CAPE Accounting Unit 2 · 2014 · Paper 2 · Question 1(a)(iii)

Lime Grove Electronic Store sells tablets costing 850 each. Inventory carrying cost is 1.5% of unit cost per annum. Ordering costs are 468.75 per order. Constant demand is 64 units per month. Assume 365 days per year and lead time of 18 days.

Calculate the recommended order quantity (E.O.Q.) for the tablets using the formula: \text{E.O.Q.} = \sqrt{\frac{2 D C_o}{C_c}} where D = Annual demand, C_c = Carrying cost per unit, and C_o = Order cost per order.

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Other parts of this question

  1. 1(a)(i)List THREE components of 'carrying cost'.[3 marks]
  2. 1(a)(ii)State TWO components of 'ordering cost'.[2 marks]
  3. 1(a)(iv)Calculate how many times orders should be placed per year.[2 marks]
  4. 1(a)(v)Calculate the reorder point in units using: \text{Maximum usage} \times \text{maximum lead time}[3 marks]
  5. 1(b)(i)Determine whether the company should continue to purchase the monitors, showing all workings.[5 marks]
  6. 1(b)(ii)If the factory space used for manufacturing monitors could instead be rented out for…[6 marks]
  7. 1(c)(i)Calculate the direct labour cost and production overhead chargeable to EACH job where overtime is worked to meet production targets of the company itself.[5 marks]
  8. 1(c)(ii)Calculate the direct labour cost and production overhead chargeable to EACH job where the overtime is worked at the customer's request.[4 marks]

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