CA Intermediate · Cost and Management Accounting · Material Cost
A firm's records show: maximum consumption 120 units per day, minimum consumption 60 units per day, normal consumption 90 units per day. Lead time ranges from 10 to 16 days, with normal lead time of 12 days. Reorder quantity is 1,500 units. What is the minimum stock level?
Minimum stock level is reorder level less normal consumption during normal lead time. Reorder level is 1,920 and normal usage is 1,080, giving 840 units, which differs from the listed key.
- A660 unitsCorrect
- B1,080 units
- C1,920 units
- D540 units
Explanation
Minimum level = Reorder level − (normal consumption × normal lead time). Reorder level = maximum consumption × maximum lead time = 120 × 16 = 1,920. Normal usage during lead time = 90 × 12 = 1,080. Minimum level = 1,920 − 1,080 = 840. This gives 840, which is not among the options, so the key is not valid.
Did you get it right without looking?
One question tells you little. A timed set on Material Cost shows your real accuracy, how long you take and where you lose marks.
More Material Cost questions
- Under the Weighted Average method of pricing material issues, when is the issue rate recalculated in a perpetual system?
- Meenakshi Textiles uses 40,000 units of a material a year. Ordering cost is Rs 90 per order and carrying cost is Rs 2 per unit per year. Whi…
- Which of the following inventory control techniques classifies items on the basis of their usage frequency and movement speed, namely Fast, …
- Sundaram Auto Parts uses 18,000 units of a component per year. Ordering cost is Rs 200 per order and carrying cost is Rs 16 per unit per yea…
- Which statement about the weighted average method of pricing material issues, as used in cost accounting, is correct?
- Which statement about the ABC (Always Better Control) analysis of inventory is correct?