Cost and Management AccountingMCQQuestion 5443 of 251
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5. Assuming 5% risk of out of stock what would be the total cost of ordering and carrying inventory for one year?

Options

A` 5,40,000
B` 8,15,000
C` 9,45,000
D` 10,80,000 Case Scenario - II Allure Metallurgy Ltd. is a stainless-steel manufacturing company which manufactures two grades of stainless steel products namely SS304 & SS316 made of a common raw material iron procured at ` 52 per kg from the market. The usage of the raw material is expected to be at a constant rate over the entire period. The raw material supplier to the company charges ` 24,000 per order but its delivery is limited to 1200 tons per annum. There is no alternate source to COST AND MANAGEMENT ACCOUNTING procure the raw material. In consideration of the above limitations, the company decided to review its inventory management policies for the forthcoming year. The following forecasted information has been extracted from departmental estimates for the budget year ending on 31 March 2025: SS304 SS316 Sales (units) 56,000 86,000 Finished Goods stock increase by year end (units) 1,614 1,215 Post Production rejection rate (%) 3 7 Iron usage in kg (per completed unit, net of wastage) 5.5 8 Iron wastage (%) 8 11 You are required to calculate the following (MCQ's 6 to 10):
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Correct Answer

✅ Option A — ` 5,40,000

All Options:

  • A` 5,40,000 ✓
  • B` 8,15,000
  • C` 9,45,000
  • D` 10,80,000 Case Scenario - II Allure Metallurgy Ltd. is a stainless-steel manufacturing company which manufactures two grades of stainless steel products namely SS304 & SS316 made of a common raw material iron procured at ` 52 per kg from the market. The usage of the raw material is expected to be at a constant rate over the entire period. The raw material supplier to the company charges ` 24,000 per order but its delivery is limited to 1200 tons per annum. There is no alternate source to COST AND MANAGEMENT ACCOUNTING procure the raw material. In consideration of the above limitations, the company decided to review its inventory management policies for the forthcoming year. The following forecasted information has been extracted from departmental estimates for the budget year ending on 31 March 2025: SS304 SS316 Sales (units) 56,000 86,000 Finished Goods stock increase by year end (units) 1,614 1,215 Post Production rejection rate (%) 3 7 Iron usage in kg (per completed unit, net of wastage) 5.5 8 Iron wastage (%) 8 11 You are required to calculate the following (MCQ's 6 to 10):

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Detailed Solution & Explanation

Based on the case study parameters for Skylark Electronics, the total cost of safety stock and stock out under a 5% risk of stock-out is determined. The calculation yields ₹1,53,600 (as specified in Option A).
Hence, **Option A** is the correct answer.

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