The following information relates to ABC tyres based in Oshakati. The normal year at ABC consist of 50 weeks and the normal working week has 5 days, Monday to Friday: Ordering Costs per order N$75.50 Holding Cost per unit 3 % of unit cost Cost per tyre N$1 500 Reorder quantity 3 000 Lead time 10 to 16 days Maximum usage 175 tyres per day Minimum usage 90 tyres per day Average usage 140 tyres per day Required: Calculate the following: (a.) The Reorder level? (b.) The Maximum level of inventory, Minimum level of inventory AND Average level of inventory?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Question 1
The following information relates to ABC tyres based in Oshakati. The normal year at ABC consist of 50 weeks and the normal working week has 5 days, Monday to Friday:
Ordering Costs per order N$75.50
Holding Cost per unit 3 % of unit cost
Cost per tyre N$1 500
Reorder quantity 3 000
Lead time 10 to 16 days
Maximum usage 175 tyres per day
Minimum usage 90 tyres per day
Average usage 140 tyres per day
Required:
Calculate the following:
(a.) The Reorder level?
(b.) The Maximum level of inventory, Minimum level of inventory AND Average level of inventory?
(c.) Calculate ordering costs based on the current reorder quantity?
(d.) Determine the order size that can minimise total inventory cost for ABC?
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