Reference no: EM132598380

Sales: 40% realized in the month of sales, discount on sales 3% in the same month. Balance realized equally in two subsequent months by calculating on gross sales.

Accounts receivable consists of Rs. 100000, company receives 60% in October, and balance received equally in last two months.

Company paid against Purchases in the month following the month of purchases. 30% of the salaries paid in the month of occurrence and remaining is paid in following month.

Other expenses paid in the month of occurrence.

Rent: Rs 1,000 per month paid quarterly in advance in current year during the month of December.

Income-tax; Installment of advance tax of next year Rs 35,000 due on 15th December.

Cash in hand: Rs 5,000 on September 30.

Company arranges financing in case of deficit, if deficit is below Rs. 200000, company takes loan from bank, if more than Rs. 200000, company issues shares. Loan installment is due during November at Rs. 8000.

Question a. When should inventory be ordered to avoid from stock shortage? Discuss with practical example. Same examples will be marked zero.

Question b. From the book of records of Zaria Arts, it is found that the average daily requirement of 20 x 30 - 90 grams art paper are 100 reams, the maximum weekly requirements of art paper do not exceed 900 reams and minimum weekly requirements during any week of 6 working days are not likely to fall below 300 reams. The time required to receive supplies is 4 days with minimum time period of 3 days in normal situations. Company has to pay Rs. 10 every time an order is placed. Interest on average inventory is 5% with carrying cost of 7%. Company purchases one ream at Rs. 50. However, in case of emergency, it takes 2 days to receive supplies. Company requires 35000 reams on annual basis.

Required: Calculate maximum and minimum levels, average maximum level and danger level.