Inventory Control MCQ Quiz in मल्याळम - Objective Question with Answer for Inventory Control - സൗജന്യ PDF ഡൗൺലോഡ് ചെയ്യുക

Concept:

Reorder level is the inventory level at which a company should place a new order in order to maintain the stock for selling and running the business effectively.

Lead time represents the time gap between placing an order and when the order is received.

Reorder level (RoL) = Lead time × daily demand

Calculation:

Given:

The annual demand for item D = 2555 units, Lead time =  8 days

daily demand of item d = \(\frac{d}{365} = \frac{2555}{365}\)

= 7 units

Reorder level (RoL) = Lead time × daily demand

= 8 × 7 

= 56 units

Additional Information

• The Economic order quantity or optimum quantity is the order quantity that minimizes the total holding cost and ordering cost in an inventory. At this point Holding cast is equal to ordering cast.

Concepts:

Lead Time:

• The time gap between the placing of an order and its actual arrival in the inventory is known as lead time.
• Lead time can be greater, less, or equal to the order cycle.

Order Cycle:

• The time period between two successive orders is called Order Cycle.

Re-order Level (ROL):

• The quantity in hand while placing the order.
• ROL = Lead Time × Demand.

[NOTE: If lead time is in days then demand should be units/day]

Calculation:

Given:

D = 2555 units/year, T_L = 8 days ⇒ 8/365 year.

ROL = Lead Time × Demand

\(ROL=2555×\frac{8}{365}\Rightarrow56\;units\)

Additional Information

When lead time T_L is greater than cycle time T, then:

ROL = (T_L - T) × D 

Given:

C₁ = Rs. 2, C₂ = 5 – 2 = Rs. 3

\({\rm{Critical\;ratio\;}} = \frac{{{C_2}}}{{{C_1}\; + \;{C_2}}} = \frac{3}{{2\; + \;3}}\)

∴ Critical ratio = 0.6

Now,

Obtaining cumulative probability:

Critical ratio (= 0.6) lies when 19 & 20.

It becomes less than 0.6 when Q = 19,

∴ Optimum demand = 20

Given:

D = 1600, C₀ = 5, C_h = 10% of C

Since, the lowest unit price is 0.98, so computing economic order quantity for Q₂

\(Q_2^* = \sqrt {\frac{{2D{C_0}}}{{{C_h}}}} = \sqrt {\frac{{2\; \times \;1600\; \times \;5}}{{0.1\; \times \;0.98}}} \)

\(\therefore Q_2^* = 404.06\;{\rm{units}}\) 

This is not feasible as Q₂ > 800 units.

Now,

Calculating for Q₁, C = Rs. 1

\(Q_1^* = \sqrt {\frac{{2D{C_0}}}{{{C_n}}}} = \sqrt {\frac{{2\; \times \;1600\; \times \;5}}{{0.1\; \times \;1}}} \)

\(\therefore Q_1^* = 400\;{\rm{units}}\) 

This is feasible, now we will calculate and compare optimum cost at higher price break point.

\({\rm{Total\;cost\;}}\left( {T.C.} \right)\; = D.C + \frac{D}{Q}{C_0} + \frac{Q}{2}{C_n}\)

\(T.C.\;\left( {at\;Q_1^* = 400} \right) = \left( {1600 \times 1} \right) + \left( {\frac{{1600}}{{400}} \times 5} \right) + \left( {\frac{{400}}{2} \times 0.1 \times 1} \right)\)

\(T.C.\;\left( {at\;Q_1^* = 400} \right) = {\rm{\;Rs}}.{\rm{\;}}1640\)

Now,

at Q = 800, (C = 0.98)

\(T.C.\;\left( {at\;Q = 800} \right) = \left( {1600 \times 0.98} \right) + \left( {\frac{{1600}}{{800}} \times 5} \right) + \left( {\frac{{800}}{2} \times 0.98 \times 0.1} \right)\)

∴ T.C. (at Q = 800) = Rs. 1617.2

Since,

Total cost at Q = 800 is less than the total cost at Q*= 400

∴ Optimal order quantity = 800.

Explanation:

Economic order quantity (EOQ):

• Economic order quantity is the size of the order which helps in minimizing the total annual cost of inventory in the organization.
• When the size of the order increases, the ordering costs (cost of purchasing, inspection, etc.) will decrease whereas the inventory carrying costs (costs of storage, insurance, etc.) will increase.
• Economic Order Quantity (EOQ) is that size of order which minimizes total annual costs of carrying and cost of ordering.

• It is evident from above that the minimum total costs occur at a point where the ordering costs and inventory carrying costs are equal.

At EOQ:

Ordering cost = Holding cost

\(\frac{D}{{{Q^*}}}{C_o} = \frac{{{Q^*}}}{2}{C_h} \ \)

\(\Rightarrow {Q^*} = \sqrt {\frac{2DC_o}{C_h}}\)

D = Annual or yearly demand for inventory (unit/year)

Q = Quantity to be ordered at each order point (unit/order)

Co = Cost of placing one order [Rs/order]

Ch = Cost of holding one unit in inventory for one complete year [Rs/unit/year]

Calculation:

Given: D =16,000 units, C_u = Rs. 2 per unit, C_o = Rs. 45 per order, C_h = 10% of C_u = 0.10 × 2 Rs/unit/year

\(\Rightarrow {Q^*} = \sqrt {\frac{2 \times 16,000\times 45}{0.10 \times 2}}\)

\(\Rightarrow {Q^*} = 2683.28 \ Units\)

So, the closest answer will be option 1.

Explanation:

Margin of safety:

• The Margin of safety is the difference between the break-even point and output is produced.
• A large margin of safety indicates that the business can earn profit even if there is a great reduction in output.
• A small margin of safety indicates that the profit will be small even if there is a small drop in output.

Margin of safety (M/S) ratio is given by,

\({\rm{Margin\;of\;safety\;ratio}}\left( {\frac{{\rm{M}}}{{\rm{S}}}} \right) = \frac{{Margin\;of\;safety}}{{Present\;sale}} = \frac{{Sales - Break\;even\;point\;sales}}{{Present\;sale}}\)

Break-even point:

• It is the point of intersection of the total cost line and total revenue line.
• There is neither profit nor loss at the break-even point.
• At the break-even point, the margin of safety ratio is 0.

At the break-even point, Sales = break-even point sales

\({\rm{Margin\;of\;safety\;ratio\;}}\left( {\frac{{\rm{M}}}{{\rm{S}}}} \right) = \frac{{Sales - Break\;even\;point\;sales}}{{Present\;sale}} = 0\)​​

Additional Information

Break-even chart:

• The break-even analysis is the study of cost-volume-profit (CVP) relationship.
• It refers to a system of determining that level of operations where the organisation neither earns profit nor suffer any loss i.e where the total cost is equal to total sales i.e the point of zero profit (Break-even point).
• In a broader sense, it refers to a system of analysis that can be used to determine probable profit at any level of activity.
• The figure below shows the break-even chart.

Explanation:

Break-even chart:

• The break-even analysis is the study of cost-volume-profit (CVP) relationship in which a graph is drawn between volume of production (Quantity) and income (Sales).
• It refers to a system of determining that level of operations where the organisation neither earns profit nor suffer any loss i.e where the total cost is equal to total sales i.e the point of zero profit (Break-even point).
• In a broader sense, it refers to a system of analysis that can be used to determine probable profit at any level of activity.
• The figure below shows the break-even chart.

The various point mentioned in the graph are:

Fixed cost:

• The cost which does not change for a given period (lifetime).
• This cost is independent of the volume of production (means it doesn’t affect by whether the production is large or small).
• For example, rent, taxes salaries of the supervisor, cost of the machine, insurance cost, etc.

Variable cost:

• This cost varies directly and proportionally with the output.
• Higher the output, larger the variable cost.
• For example, the cost of raw material, cost of labour, etc.

Total Cost:

• Total cost is the sum of fixed cost and variable cost.

Total revenue/sales:

• It indicates the return obtained by selling the number of units produced.
• It is directly proportional to the volume of production.

Margin of safety:

• The Margin of safety is the distance between the break-even point and output is produced.
• A large margin of safety indicates that the business can earn profit even if there is a great reduction in output.
• A small margin of safety indicates that the profit will be small even if there is a small drop in output.

Break-even point:

• It is the point of intersection of the total cost line and total revenue line.
• There is neither profit nor loss at the break-even point.

Concept:

Economic order quantity is given by:

\({EOQ}= \sqrt {\frac{2DC_o}{C_h}} \)

where D =  demand (unit/time), C_o = ordering cost (Rs/order), C_h = cost of carrying inventory (Rs/unit/time)

Calculation:

Given:

D = 9000 \(\frac{{Units}}{{year}}\), Cost of one part (C) = Rs. 20, Co = Rs. 15/order

Ch = 15% of unit cost = \( \frac{{15}}{{100}} \times 20 = Rs.3/unit/year\)

Economic order quantity is:

\(\left( {EOQ} \right) = \sqrt {\frac{{2D{C_o}}}{{{C_h}}}} = \sqrt {\frac{{2 \times 9000 \times 15}}{3}} = 300~units\)

Explanation:

The inventory comprises of large number of items. All items are not of equal importance. The firm, therefore, should pay more attention and care to those items whose usage value is high and less attention to those whose usage value is low.

There are different types of selective inventory control:

Explanation:

Economic order quantity is that size of the order which helps in minimizing the total annual cost of inventory in the organization.

When the size of order increases, the ordering costs (cost of purchasing, inspection, etc.) will decrease whereas the inventory carrying costs (costs of storage, insurance, etc.) will increase.

Economic Order Quantity (EOQ) is that size of order which minimizes total annual costs of carrying and cost of ordering.

It is evident from above that the minimum total costs occur at a point where the ordering costs and inventory carrying costs are equal.