Case Study 1

Ms. Muna is an owner of textile manufacturing business. She needs the raw material on regular basis. Therefore, in order to maintain effective control in the purchase and consumption of material, she decided to uses different material control techniques such as, determination of various levels of materials, EOQ, and ABC analysis. Ms. Muna used additional technique but she found it not useful since the supplier was not able to deliver the material before its used timing. Cost accountant at the factory reported the following data: The normal usage was 200 units per week. In case of low demand, the minimum usage was 100 units. During high demand time Ms. Muna used to purchase 300 units. She required two types of raw material, Material X and Material Y. The normal quantity demanded is 150 units per week and average consumption is 50 units. Ms. Muna calculated the lead time to get material in respect to emergency as 1 week for material X and 2 weeks for material Y. Ms. Muna instructed the warehouse manager that he should place reorder from 2 to 3 weeks & 3 to 4 weeks for material X and Y respectively. The cost of placing a material order is 40 OMR. The annual carrying cost is 10 percent of inventory cost, and the cost per unit is 20 OMR.

1) Assuming minimum level is 200 units, average level 100 units, annual consumption 2,000, cost per order 10 OMR, and carrying cost per unit 4 OMR. Based on the scenario given, the average stock level?

a.

200 Units

b.

250 Units

c.

150 Units

d.

None of the given options

2) aximum level of Material X is:

a.

1,545 Units

b.

850 Units

c.

1,100 Units

d.

1,345 Units