Question 7
ICAN
•
2022
•
PERFORMANCE MANAGEMENT
•
mixed
Case Stimulus
Eko Limited is a small manufacturing company producing two high quality products called ‘Kay’ and ‘Lay’. Both products use a raw material Tee (costing ₦30 per kg) in their manufacture. The Directors are reviewing the company’s stock management policies for the forthcoming year as part of the annual budget preparation cycle. Due to the product specification, quality is an important factor and a quality control inspection takes place immediately after the production cycle has ended. At this point, any inferior products are rejected and only good production becomes available for sale. In addition to these losses, a certain quantity of waste is unavoidable from material Tee due to the cutting process for both products.
The following forecast information has been extracted from departmental estimates for the year ending 31st December 2020 (the budget period).
Sales (quality approved units)
Product Kay: 23,000
Product Lay: 10,000
Finished goods stock increase by year-end
Product Kay: 275
Product Lay: 185
Post-production rejection rate (%):
Product Kay: 2
Product Lay: 3
Material Tee usage (per completed unit, net of wastage):
Product Kay: 2kg
Product Lay: 3kg
Material Tee wastage (%):
Product Kay: 5
Product Lay: 10
Additional Information
{
"label": "Supporting information 1",
"content": "| | Product Kay | Product Lay |\n|----------------------|-------------|-------------|\n| Sales (quality approved units) | 23,000 | 10,000 |\n| Finished goods stock increase by year-end | 275 | 185 |\n| Post-production rejection rate (%) | 2 | 3 |\n| Material Tee usage (per completed unit, net of wastage) | 2kg | 3kg |\n| Material Tee wastage (%) | 5 | 10 |"
}
Requirements
(
a
)
Prepare operational budgets for the year ending 31st December 2020 under the following headings: (Show your workings clearly)
(
b
)
Calculate the Economic Order Quantity for Material Tee (in kgs).
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About This Question
This is
Ican
2022
Performance Management
Question 7.
It is one of the
mixed
questions from the
2022
Ican
Performance Management
examination.