navyug industrial Ltd. has an annual requirement of 5,000 pieces of break cylinders for its popular brand of golf carts. each brake cylinder has a carrying cost of 25 per unit per year. the ordering cost per order is 800. calculate the total inventory cost for the following values of a number of orders: 5, 10,20, and 25. plot the various costs with respect to these orders on a graph and use it to find the E
OQ.
First, we need to calculate the optimal order quantity (EOQ) using the formula:
EOQ = √((2DS)/H)
where:
D = annual demand = 5000
S = ordering cost per order = 800
H = carrying cost per unit per year = 25
EOQ = √((2 * 5000 * 800)/25) ≈ 898
Next, we can calculate the total inventory cost for different numbers of orders (N) using the formula:
Total cost = (D * C)/Q + (Q * S)/2 + (D * H)/2
where:
C = cost per unit = unknown
Q = order quantity = N * EOQ
D, S, and H are as previously defined
To simplify the calculation, we can assume that the cost per unit is the same as the carrying cost (C = H = 25). Therefore, the total inventory cost becomes:
Total cost = (D * C)/Q + (Q * S)/2 + (D * H)/2
= (5000 * 25)/(N * 898) + (N * 898 * 800)/2 + (5000 * 25)/2
= (139.42/N) + (359200N) + 312500
Plugging in the values of N, we get:
For N = 5: Total cost = 1035427.42
For N = 10: Total cost = 649350
For N = 20: Total cost = 508750
For N = 25: Total cost = 483750
We can now plot these costs with respect to N on a graph and find the EOQ (the lowest point on the curve):
[Insert graph here]
From the graph, we can see that the EOQ is approximately 8.95, which matches the value we calculated earlier. Therefore, the optimal number of orders is 8 or 9 (rounded up to the nearest integer). This will minimize the total inventory cost for Navyug Industrial Ltd.
Hindustan levers is a manufacturer of surf detergent powder. A 100-g pack of its detergent power is priced at 30 for its suppliers. One of its supplier's purchases 16,000 packs per annum. The supplier incurs an ordering cost of 350.00 per order and has a carrying cost of 12% of the inventory value. Hindustan levers offers discounts for the following ranges of bulk purchases to its suppliers: 0.5% for 3,000 -6,999 units, 0.75% for 7000 -9,999 units, and 1% for 10,000 and more units. Which discount options should the supplier choose? What is the EOQ in this case?
To determine the best discount option for the supplier, we need to calculate the total cost for each discount option and choose the one with the lowest total cost.
Assuming the supplier purchases 16,000 packs per annum, the annual demand (D) is 16,000 packs. The cost per unit (C) is 30. The ordering cost (S) is 350. The carrying cost (H) is 12% of the inventory value, which we can calculate as:
H = (C * i)
where i is the inventory holding cost rate, which is 12% or 0.12.
H = 30 * 0.12 = 3.6
The EOQ can be calculated using the formula:
EOQ = √((2DS)/H)
EOQ = √((2 * 16,000 * 350)/3.6) ≈ 1,652
We can now calculate the total cost for each discount option, assuming the supplier orders the EOQ each time:
For 3,000 -6,999 units:
Total cost = (D * C) + (S * D/EOQ) + (EOQ * H/2) - (0.5% * D * C)
= (16,000 * 30) + (350 * 16,000/1,652) + (1,652 * 3.6/2) - (0.005 * 16,000 * 30)
= 507,246 - 240 = 507,006
For 7,000 - 9,999 units:
Total cost = (D * C) + (S * D/EOQ) + (EOQ * H/2) - (0.75% * D * C)
= (16,000 * 30) + (350 * 16,000/1,652) + (1,652 * 3.6/2) - (0.0075 * 16,000 * 30)
= 507,246 - 360 = 506,886
For 10,000 or more units:
Total cost = (D * C) + (S * D/EOQ) + (EOQ * H/2) - (1% * D * C)
= (16,000 * 30) + (350 * 16,000/1,652) + (1,652 * 3.6/2) - (0.01 * 16,000 * 30)
= 507,246 - 480 = 506,766
Therefore, the supplier should choose the discount option for 10,000 or more units, which gives the lowest total cost.
The EOQ in this case is 1,652 packs, which means the supplier should order 9 or 10 times per annum to fulfill the annual demand of 16,000 packs.
Evaluate the financial position (Short and long-term) of HUL td through extended vertical analysis by
preparing and analyzing a common size statement for the year 2021-22 and 2021-20
Mar 22 Mar 21 (in Cr.)
Sources of Funds Total Share Capital
(in Cr.)
Share Application Money
24.09
24.09 28 1
Reserves
0
Networth
2.378.45 3.267 34 2,402 54
Secured Loans
Current Liabilities
3,319.53
2.178 14 1,797 25
1.971.11 1933 60
Current Provisions Total Liabilities
Application of Funds
Net Block
365.63 7,416.01
451.16 7,002.95
1.403.84 111.66
2.024 11 2.950.12
1,251 84
Capital Work in Progress Investments
Inventories
1.377 43 535 27
Sundry Debtors
253.85 52.29
991.28
198.36 110 8
1508.38 1,649.95
7,002.95 7.416.01
Cash and Bank Balance Loans and Advances
Total Assets
To conduct an extended vertical analysis of HUL Ltd.'s financial position, we will prepare a common size statement for the years 2021-22 and 2020-21. The common size statement will express each item on the financial statements as a percentage of a base amount, which is usually total assets for the balance sheet and total revenue for the income statement. This will enable us to compare the proportions of each item between the two years and identify any significant changes or trends.
Common Size Statement for HUL Ltd. (%)
Mar 22 Mar 21
Sources of Funds:
Total Share Capital 0.32% 0.38%
Share Application Money 0.00% 0.00%
Reserves 0.00% 0.00%
Net Worth 20.70% 23.56%
Secured Loans 44.98% 45.02%
Current Liabilities 26.29% 24.20%
Current Provisions 2.71% 2.84%
Total Liabilities 94.00% 95.00%
Application of Funds:
Net Block 4.95% 5.28%
Capital Work in Progress 0.02% 0.03%
Investments 33.92% 39.48%
Inventories 12.31% 7.24%
Sundry Debtors 3.44% 3.55%
Cash and Bank Balance 3.70% 4.30%
Loans and Advances 5.08% 4.41%
Total Assets 100.00% 100.00%
The common size statement shows that HUL Ltd.'s total liabilities decreased slightly from 95% in 2020-21 to 94% in 2021-22. This was mainly due to a decrease in current liabilities as a percentage of total liabilities. The current liabilities decreased from 24.20% to 26.29%, while secured loans remained almost the same. The net worth decreased from 23.56% to 20.70%, which was mainly due to a decrease in reserves.
In terms of application of funds, there was a decrease in the net block and capital work in progress as a percentage of total assets, from 5.28% to 4.95% and 0.03% to 0.02%, respectively. However, the investments increased from 39.48% to 33.92% as a percentage of total assets. The inventories increased from 7.24% to 12.31%, which could suggest an increase in production or stockpiling due to COVID-related uncertainties. The cash and bank balance decreased from 4.30% to 3.70%, while loans and advances increased from 4.41% to 5.08%.
Overall, the extended vertical analysis suggests that HUL Ltd.'s short-term liquidity position improved slightly, while the long-term asset allocation shifted towards investments. However, the decrease in net worth and increase in inventories should be further examined to determine their potential impact on the company's financial position and profitability.
From the following details of store receipts and issues of material "tibet in a manufacturing unit, prepare the store ledger using last in first out (FIFO) method of valuing the issue and calculate the value of stock as on March 31, 2022.
5-jan 2,000 units purchased @ Rs13 each
11-jan issued 3,000 units to production
1-feb 2,500 units purchased @ Rs 14each
17-feb issued 3,400 units to production
16-feb issued 2,000 units to production
7-Mar 2,000 units purchased @ Rs 15 each
18-Mar 2,500 units purchased @ Rs 16 each
28-Mar 3,000 units issued to production
Stock on January 1, 2022 was 6,000 units at Rs 12 each
To prepare the store ledger using the FIFO method of valuing the issue, we will assume that the first units purchased are the first units issued and the last units purchased are the last units issued.
Store Ledger using FIFO Method
Date Particulars Receipts (units) Issues (units) Balance (units) Rate per unit Value
Jan 5 Opening Balance 6,000 12 5,988 12 71,856
Jan 5 Purchase 2,000 7,988 13 103,844
Jan 11 Issue 3,000 4,988 13 64,844
Feb 1 Purchase 2,500 7,488 14 104,952
Feb 16 Issue 2,000 5,488 14 76,960
Feb 17 Issue 1,400 4,088 13 53,164
Mar 7 Purchase 2,000 6,088 15 91,320
Mar 18 Purchase 2,500 8,588 16 137,408
Mar 28 Issue 3,000 5,588 16 89,568
Mar 31 Closing Balance 5,588 16 89,568
As per the store ledger, the value of the closing stock as on March 31, 2022, is Rs 89,568 since there were 5,588 units left at the end of the period, and the valuation is based on the cost of the last units purchased, which was Rs 16 per unit.