Annual Requirement =20,000 units

Ordering cost= Rs.100 per order

Cost per unit =Rs.4
Carrying cost =16%
Determine the EOQ of the firm and finally justify the EOQ

Formuale

Average stock level =Minimum stock level + ½ of the reorder quantity

Reordering level=Minimum level of stock for uninterrupted flow of production proces

Solution EOQ 2500

Reorder Qty - Units 20,000 10,000 5,000 2,500 500

Annual Consumption 20,000 20,000 20,000 20,000 20,000

Number of orders 1 2 4 8 40

Ordering cost @100 100 200 400 800 4000

Average Stock 10,000 5,000 2,500 1,250 250

Holding cost 6,400 3,200 1,600 800 160

Total Cost 6,500 3,400 2,000 1,600 4,160

MINIMUM
order quantity

ed flow of production process

 Current Year Production 60000 Creditors
Raw Material 60% Debtors
Direct Wages 10%
Overheads 20% Selling Price p.u.

RM storage time 2 weeks Wages & Overheads are paid on 1'st of the next m
WIP 1 Month
FG 3 Months Cash in hand

1 RM Consumed 180000 5 Debtors

in stores 30000

2 WIP RM 15000 Statement of WC

Labour 1250
Overhead 2500 CA RM
Total 18750 WIP
FG
3 FG RM 45000 Debtors
Labour 7500 Cash
Overhead 15000
Total 67500 CL Creditors

4 Creditors RM 30000
Wages 2500
Overheads 5000
Total 37500
 2 Months
3 Months

are paid on 1'st of the next month

20000

67500 Cost that is blocked !!!!

Statement of WC
Total
30000
18750
67500
67500
20000 203750

37500 37500

WC 166250
 ANNUAL
Sales 3600000 Working Capital
AR Credit period - 2 months Current Assets
AR
Material consumed 900000 RM
AP credit period - 2 months FG
Cash
Wages (1 month lag) 720000 Sales Promo

Cash Mfg expenses (1 month lag) 960000

Currrent Liabities
Admin expenses (1 month lag) 240000 AP
Wages payable
Sales promotion (quarterly in advance) 120000 Mfg expenses payable
Admin Expenses
GP ratio 25%
Net
Depreciation is included in COGS Add Margin
FINAL WC
RM & FG - 1 month stock
GP Sales
Cash balance 100000 Material
wages
Margin of Safety 20% Mfg expenses

Profit earned
Cost

Depreciation
 Total
490000
75000
215000
100000
30000 910000

150000
60000
80000
20000 310000

600000
120000
720000

3600000 Total Cost

900000 MFG 2580000
720000 Dep 120000
960000
Admin 240000
900000 Sales prom 120000
2700000 Total 3060000

120000 Cash cost 2940000

Illustration 4 Page 10.24
per unit Amount in Rs Units Fixed Variable VC per unit
Selling Price 18 432000 24000
Material 6 144000
Wages 5 120000 48000 72000 3
Overheads 5 120000 96000 24000 1

Total Fixed costs 144,000.00

Total VC per unit 10
Contb per unit 8

Single Shif Double Shif

Rate Amount Rate Amount
Units sold 24000 48000

VC Material 6 144000 5.4 259200

Wages - variable 3 72000 3 144000
Overheads - variable 1 24000 1 48000

FC Wages - Fixed 48000 48000

Overheads - Fixed 96000 96000

Total cost 384000 595200

Sales 432000 864000

Profit 48000 268800

Others
Credit period allowed to customers will remain unchanged

Debtors t ratio 4
Months 3

SINGLE shif Double shif

No of units sold 24000 48000
RM consumed
Statement of WC
Units Single Shif Units Double Shif

RM At cost 6,000 36,000 12000 64,800

WIP at prime 2,000 22,000 2000 18800 New Prime cost
FG At total cost 4,500 72,000 9,000 111,600
AR 96,000 148800
Total CA 226,000 344,000
Creditors 24,000 43200
Wages 5,000 8000
Expenses Payable 5,000 6000
Total CL 34,000 57,200

CA-CL 192,000 286,800

Additional WC requirement 94,800

New Prime cost Material 5.4
wages 3
Wages FC 1
9.4
Collection from Customers

Collection month - Credit sales only

STEP 1 Sales Cash Sales Credit Sales Jan Feb March
Jan 100,000 20,000 80,000 60,000 20,000
Feb 120,000 24,000 96,000 72,000
March 140,000 28,000 112,000
April 80,000 16,000 64,000
May 60,000 12,000 48,000
June 80,000 16,000 64,000
July 100,000 20,000 80,000
August 80,000 16,000 64,000
Sept 60,000 12,000 48,000
October 100,000 20,000 80,000
Total Credit collections
Cash collections
FINAL COLLECTIONS FROM CUSTOMER
Note: No bad debt in this questions

Monthly cash budget for the period April to Sept 2017

Opening Balance

Add: Receipts
Collections from customers

Less : Payments
Purchases
Wages
Interest
Advance tax
Total payments

NET INFLOW (Just for the month)

Temporary investment
Liquidate Investment
Borrow

Closing Cash balance

edit sales only
April May June July August Sept October

24,000
84,000 28,000
48,000 16,000
36,000 12,000
48,000 16,000
60,000 20,000
48,000 16,000
36,000

108000 76000 52000 60000 76000 68000

16,000 12,000 16,000 20,000 16,000 12,000
124,000 88,000 68,000 80,000 92,000 80,000

d April to Sept 2017

April May June July August Sept
20,000 20,000 20,000 20,000 20,000 20,000

124,000 88,000 68,000 80,000 92,000 80,000

48,000 64,000 80,000 64,000 48,000 80,000

9,000 8,000 10,000 10,000 9,000 9,000
3,000 3,000
5,000
60,000 72,000 90,000 82,000 57,000 89,000

64,000 16,000 (22,000) (2,000) 35,000 (9,000)

64,000 16,000 35,000

22,000 2,000 9,000

20,000 20,000 20,000 20,000 20,000 20,000

Projected PNL statement
Amt in Rs Lakhs
Year 2 Year 3
Sales 1000 1200
Other income 10 10

Cost RM consumed 350 420

Stores 120 144
Mfg expenses 160 192
Other expenses 100 150 (additional expenses)
Depreciation 100 100

Net Profit 180 204

Cash Flow statement

Net Profit 204
Add Non Cash expenses
Depreciation 100

Increase in stock -50

Cash from operations 254 In Rs Lakhs

Amount available for loan servicing 19,050,000