An organisation manufactures a single product. The following information with regard to the raw material needed in the production process is supplied to you: Normal delivery time: 2.5 weeks Maximum delivery time: 3.5 weeks Normal usage: 52 000 units per year Purchase price per unit: R8.50 Cost of placing an order: R18.00 Interest rate: 2% per year Storing cost per unit: R2.50 Required: Calculate the re-order point if the organisation has a policy to keep safety stock. Calculate the safety stock that should be kept by the organisation.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
QUESTION 4
An organisation manufactures a single product. The following information with regard to the raw material needed in the production process is supplied to you:
Normal delivery time: 2.5 weeks
Maximum delivery time: 3.5 weeks
Normal usage: 52 000 units per year
Purchase price per unit: R8.50
Cost of placing an order: R18.00
Interest rate: 2% per year
Storing cost per unit: R2.50
Required:
- Calculate the re-order point if the organisation has a policy to keep safety stock.
- Calculate the safety stock that should be kept by the organisation.
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