Division A: Case Scenario

Material Cost

The purchase committee of A Ltd$.$ has been entrusted to review the

material procurement policy of the company. The chief marketing

manager has appraised the committee that the company at present

produces a single product $x$ by using two raw materials A and $B$ in the

ratio of $3$:$2.$ Material $A$ is perishable in nature and has to be used within

$10$ days from Goods received note $($GRN$)$ date otherwise material

becomes obsolete. Material $B$ is durable in nature and can be used even

after one year. Material $A$ is purchased from the local market within $1$ to

$2$ days of placing order. Material $B,$ on the other hand, is purchased from

neighbouring state and it takes $2$ to $4$ days to receive the material in the

store.

The purchase price of per kilogram of raw material A and $B$ is $30$ and

$44$ respectively exclusive of taxes. To place an order, the company has

to incur an administrative cost of $1,200.$ Carrying cost for Material $A$

and B is $15\%$ and $5\%$ respectively. At present material A is purchased in

a lot of $15,000kg.$ to avail $10\%$ discount on market price. GST applicable

for both the materials is $18\%$ and the input tax credit is availed.

The sales department has provided an estimate that the company could

sell $30,000kg.$ in January $2024$ and also projected the same trend for the

entire year.

You are required to Calculate

$1.$ For the month of January $2024,$ what would be the quantity of the material to be requisitioned for both material A and B$?$

$2.$ The Economic order quantity$($EOQ$)$ for material A and B$.$

$3.$ What would be the maximum stock level of A$?$

$4.$ Calculate saving$/$loss in purchase of material A if the Purchase order Quantity is equal to EOQ?