XYZ Enterprises manufactures different types of beverages. The monthly demand pattern for these beverages is as follows: Orange Juice: 60,000…

CA Intermediate · Cost and Management Accounting · RTP · January 2026
XYZ Enterprises manufactures different types of beverages. The monthly demand pattern for these beverages is as follows: Orange Juice: 60,000 litresApple Juice: 20,000 litresGrape Juice: 5,000 litres To produce one litre of Apple Juice, Orange Juice, and Grape Juice, 6 kg of apples, 3 kg of oranges, and 5 kg of grapes are required, respectively. There is no opening or closing stock of raw materials. XYZ Enterprises can source the raw materials either from local farmers (import in case or grapes) or from wholesale suppliers. The company has the flexibility to purchase any quantity of materials from the wholesale suppliers, but when buying from the farmers or in case of import, it must adhere to a minimum quantity that is specified for each type of material. Below is a summary of the purchasing conditions: Material Wholesale Supplier Farmers Oranges Minimum purchase: Any quantity 7,20,000 kg Price per kg:18.00 Price per kg:15.00 Transportation:5,000 Transportation:20,000 Sorting and piling cost:1,500 Loading cost:10/50 kg Loading cost:5/50 kg Unloading cost:2/50 kg Unloading cost:2/50 kg Apples Minimum purchase: Any quantity 3,60,000 kg Price per kg:12.00 Price per kg:10.00 Transportation:11,000 Transportation:15,000 Sorting and piling cost:1,200 Loading cost:10/50 kg Loading cost:3/50 kg Unloading cost:2/50 kg Unloading cost:2/50 kg Grapes Wholesale Supplier Minimum purchase: Any quantity Import Minimum purchase: 1,50,000 kg Price per kg:32.00 Price per kg:25.00 Transportation:3,000 Transportation:15,000 Loading cost:10/50 kg Loading cost:25/50 kg Unloading cost:2/50 kg Unloading cost:2/50 kg Transportation and Sorting and piling cost is given for per purchase order. 8% import duty is applicable is purchase of grapes for which ITC is not available. XYZ Enterprises is also paying an annual interest rate of 15% on cash credit facility and - 1,000 per 1,000 kg of rent to its warehouse. You are required to: Calculate the total purchase cost for each material (Apple, Orange, and Grape) under the following two options: Purchase from Wholesale SupplierPurchase from Farmers/ImportCalculate the Economic Order Quantity (EOQ) for each material under both options.Provide a Recommendation on the best purchase option for the

Suggested Answer and Working Notes:

(i) Calculation of Purchase Cost per Kg. of Materials Wholesale Market (₹) Farmers (₹) Orange: Purchase price 18.00 15.00 Add: Loading Cost 0.20 (₹ 10 ÷ 50 Kg.) 0.10 (₹ 5 ÷ 50 Kg.) Add: Unloading Cost 0.04 (₹ 2 ÷ 50 Kg.) 0.04 (₹ 2 ÷ 50 Kg.) 18.24 15.14 Apple: Purchase price 12.00 10.00 Add: Loading Cost 0.20 (₹ 10 ÷ 50 Kg.) 0.06 (₹ 3 ÷ 50 Kg.) Add: Unloading Cost 0.04 (₹ 2 ÷ 50 Kg.) 0.04 (₹ 2 ÷ 50 Kg.) 12.24 10.10 Grape: Purchase price 32.00 25.00 Add: Import duty @ 8% --- 2.00 Add: Loading Cost 0.20 (₹ 10 ÷ 50 Kg.) 0.50 (₹ 25 ÷ 50 Kg.) Add: Unloading Cost 0.04 (₹ 2 ÷ 50 Kg.) 0.04 (₹ 2 ÷ 50 Kg.) 32.24 27.54 (ii) Economic Order Quantity (E.O.Q) $EOQ = \sqrt{\frac{2 \times \text{Annual requirement} \times \text{Ordering cost}}{\text{Carrying cost per kg. per annum}}}$ Annual Requirement (A) Commodity Quantity (Kg.) Orange (60,000 Ltr. x 3 Kg. x 12 months) 21,60,000 Apple (20,000 Ltr. x 6 Kg. x 12 months) 14,40,000 Grape (5,000 Ltr. x 5 Kg. x 12 months) 3,00,000 Cost per Order (O) Wholesale Market (₹) Farmers (₹) Orange: Transportation cost 5,000 20,000 Sorting and piling cost --- 1,500 5,000 21,500 Apple: Transportation cost 11,000 15,000 Sorting and piling cost --- 1,200 11,000 16,200 Grape: Transportation cost 3,000 15,000 Sorting and piling cost --- --- 3,000 15,000 Carrying Cost per Kg. per annum (C x i) Wholesale Market (₹) Farmers (₹) Orange: Interest on cash credit 2.736 (18.24 x 15%) 2.271 (15.14 × 15%) Warehouse rent* 1.0000 1.0000 3.736 3.271 Apple: Interest on cash credit 1.836 (12.24 x 15%) 1.515 (10.10 x 15%) Warehouse rent 1.0000 1.0000 2.836 2.515 Grape: Interest on cash credit 4.836 (32.24 x 15%) 4.131 (27.54 x 15%) Warehouse rent 1.0000 1.0000 5.836 5.131 * Warehouse rent per Kg. = 1,000 / 1,000Kg. = 1 Calculation of E.O.Q for each material under the both options Wholesale Market (Kg.) Farmers/Import (Kg.) Orange $\sqrt{\frac{2 \times 21,60,000\text{Kg.} \times - 5,000}{3.736}} = 76,036.72$ $\sqrt{\frac{2 \times 21,60,000\text{Kg.} \times - 21,500}{3.271}} = 1,68,508.11$ Apple $\sqrt{\frac{2 \times 14,40,000\text{Kg.} \times - 11,000}{2.836}} = 1,05,691.36$ $\sqrt{\frac{2 \times 14,40,000\text{Kg.} \times - 16,200}{2.515}} = 1,36,202.40$ Grape $\sqrt{\frac{2 \times 3,00,000\text{Kg.} \times - 3,000}{5.836}} = 17,562.19$ $\sqrt{\frac{2 \times 3,00,000\text{Kg.} \times - 15,000}{5.131}} = 41,881.31$ (iii) Selection of best purchase option for the purchase of Grapes Wholesale Market Import Annual Requirement (A) (Kg.) 3,00,000 3,00,000 Order Quantity (Q) 17,562.19 1,50,000 No. of orders (A/Q) 17 2 Average Inventory (Q/2) (Kg.) 8,781 75,000 Ordering Cost (₹) (I) 51,000 (17 Orders x 3,000) 30,000 (2 Order x 15,000) Carrying Cost (₹) (II) 51,245.92 (Average Inventory x Carrying cost per kg.) (8,781 Kg. x 5.836) 3,84,825 (75,000 Kg. x 5.131) Purchase Cost (₹) (III) 96,72,000 (3,00,000 Kg. x 32.24) 82,62,000 (3,00,000 Kg. x 27.54) Total Cost (i) + (II) + (III) 97,74,245.92 86,76,825 Importing grapes is the best purchase option for the XYZ enterprises.

Topics: Material Cost

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic