MODULE : MAC1501
,MAC1501 Exam
Revision Pack
Contains:
Past Exam Papers with
Solutions (2016-2018) with
2011 -2014 Solutions to
exams
,OCTOBER/NOVEMBER 2017
Question 1
1.1) Calculation of the cost of material during September issued using weighted-average method of
inventory valuation (round off to the nearest (2) decimals where applicable)
Answer
Weighted-average method
Date Transaction Units Calculation of unit cost Balance Unit Total
September units cost cost
R R
1 800 3 200
7 Purchases 500 5 700/1 300 = 4,39 1 300 4,39 5 700
10 Issues 800 500 4,39 2 195
12 Purchases 1 000 (6 500+2 195)/1 500 1 500 5,80 8 695
17 Issues 600 900 5,80 5 220
19 Purchases 900 (6 300+5 220)/1 800 1 800 6,40 11 520
27 Issues 1 000 800 6,40 5 120
The cost of material during September issued:
10: September (800 x4,39 ) = R3 512
17 :September (600 x5,80 ) = R3 480
27 :September (1 000 x6,40) = R6 400
. R13 392
1.1.2)
The economic order quantity
EQM = Square root of (2 X S XF)/C page 305 of your study guide.
Where :
S = Annual demand
F = Cost of order
C = Unit handling cost
EQM = Square root of (2 X S XF)/C
. = Square root of (2 X 12 000 X R40,50)/R0,30
= 1 800 kgs
MR. BLESSING K.K 0742 523 282 MR. BLESSING K.K 0742 523 282
, Ordering costs
Ordering costs = Number of orders x cost per order
Number of orders = Annual demand/ Economic order quantity
. = 12 000kgs/ 1 800
= 6,67(7 times)
Ordering costs = 7 x R40,50 = R283,50
Holding costs = Average inventory x unit handling cost
Average inventory = EOQ/2 = 1 800/2 = 900 kgs
Holding costs = 900 x R0,30 = R270
NB At the EQM, holding costs must be equal to ordering costs. The difference above of R13,50 is
because of rounding.
1.2) JIT (Just in time system) and Material Requirements Planning
1.3) Assumptions underline EQM
Assumptions
1. Demand is known, constant and independent
2. Lead time is known and constant
3. Receipt of inventory is instantaneous and complete
4. Quantity discounts are not possible
5. Only variable costs are set up and holding
6. Stock outs can be completely avoided.
EOQ is a model which is used as an inventory management strategy to mitigate the risk of holding too
much or too little inventory at hand. This model is however difficult to apply in real world. Based on the
assumptions, demand cannot be determined with certainty and can never be constant. There are
cyclical and seasonal changes in demand. The lead time will vary and will not be the same in real world
due to factors such as availability of inventory from suppliers. Practically, receipt of inventory can never
be instantaneous and complete. Economies of scale will apply in real world, hence discounts are granted
for bulk buying. However, citing all the EOQ assumptions, the model can be used to a lesser extent due
to the fact that the most of the assumptions are impractical.
QUESTION 2
2.1.1) and 2.1.2)
Calculation of fixed and variable costs using high-low method :
Total Production Overheads Units Produced
(Y) (X)
High July R35 000 12 000 units
MR. BLESSING K.K 0742 523 282 MR. BLESSING K.K 0742 523 282
,MAC1501 Exam
Revision Pack
Contains:
Past Exam Papers with
Solutions (2016-2018) with
2011 -2014 Solutions to
exams
,OCTOBER/NOVEMBER 2017
Question 1
1.1) Calculation of the cost of material during September issued using weighted-average method of
inventory valuation (round off to the nearest (2) decimals where applicable)
Answer
Weighted-average method
Date Transaction Units Calculation of unit cost Balance Unit Total
September units cost cost
R R
1 800 3 200
7 Purchases 500 5 700/1 300 = 4,39 1 300 4,39 5 700
10 Issues 800 500 4,39 2 195
12 Purchases 1 000 (6 500+2 195)/1 500 1 500 5,80 8 695
17 Issues 600 900 5,80 5 220
19 Purchases 900 (6 300+5 220)/1 800 1 800 6,40 11 520
27 Issues 1 000 800 6,40 5 120
The cost of material during September issued:
10: September (800 x4,39 ) = R3 512
17 :September (600 x5,80 ) = R3 480
27 :September (1 000 x6,40) = R6 400
. R13 392
1.1.2)
The economic order quantity
EQM = Square root of (2 X S XF)/C page 305 of your study guide.
Where :
S = Annual demand
F = Cost of order
C = Unit handling cost
EQM = Square root of (2 X S XF)/C
. = Square root of (2 X 12 000 X R40,50)/R0,30
= 1 800 kgs
MR. BLESSING K.K 0742 523 282 MR. BLESSING K.K 0742 523 282
, Ordering costs
Ordering costs = Number of orders x cost per order
Number of orders = Annual demand/ Economic order quantity
. = 12 000kgs/ 1 800
= 6,67(7 times)
Ordering costs = 7 x R40,50 = R283,50
Holding costs = Average inventory x unit handling cost
Average inventory = EOQ/2 = 1 800/2 = 900 kgs
Holding costs = 900 x R0,30 = R270
NB At the EQM, holding costs must be equal to ordering costs. The difference above of R13,50 is
because of rounding.
1.2) JIT (Just in time system) and Material Requirements Planning
1.3) Assumptions underline EQM
Assumptions
1. Demand is known, constant and independent
2. Lead time is known and constant
3. Receipt of inventory is instantaneous and complete
4. Quantity discounts are not possible
5. Only variable costs are set up and holding
6. Stock outs can be completely avoided.
EOQ is a model which is used as an inventory management strategy to mitigate the risk of holding too
much or too little inventory at hand. This model is however difficult to apply in real world. Based on the
assumptions, demand cannot be determined with certainty and can never be constant. There are
cyclical and seasonal changes in demand. The lead time will vary and will not be the same in real world
due to factors such as availability of inventory from suppliers. Practically, receipt of inventory can never
be instantaneous and complete. Economies of scale will apply in real world, hence discounts are granted
for bulk buying. However, citing all the EOQ assumptions, the model can be used to a lesser extent due
to the fact that the most of the assumptions are impractical.
QUESTION 2
2.1.1) and 2.1.2)
Calculation of fixed and variable costs using high-low method :
Total Production Overheads Units Produced
(Y) (X)
High July R35 000 12 000 units
MR. BLESSING K.K 0742 523 282 MR. BLESSING K.K 0742 523 282
