Inventory planning & control under uncertainty, Managerial Accounting

Inventory planning & control under uncertainty

The basic EOQ model assumes that all the parameters (elements) in the model are certain (i.e. can be predicted precisely in advance). Such parameters are:

(a) Demand or usage of stocks
(b) Lead times.
(c) Holding costs per unit, ordering costs per order and costs per unit.

In reality however, stock demand, supplies lead times and cost date are not known with certainty. Accordingly to make the models applicable to real situations we must consider uncertainty when planning for inventory levels.

To protect itself from conditions of uncertainty, a firm will maintain a level of safety stocks for raw materials, work-in-growth and completed goods stocks. Therefore safety stocks are the quantity of stocks which are carried in excess of the expected use throughout the lead time to give a cushion against running out of stocks. Thus the reorder point is computed as safety stock plus the average usage during the lead time

i.e. reorder point = Average usage during lead time + safety (buffer) stock.

Posted Date: 12/6/2012 6:30:37 AM | Location : United States







Related Discussions:- Inventory planning & control under uncertainty, Assignment Help, Ask Question on Inventory planning & control under uncertainty, Get Answer, Expert's Help, Inventory planning & control under uncertainty Discussions

Write discussion on Inventory planning & control under uncertainty
Your posts are moderated
Related Questions
The board of a company decides that the strategic objectives of the company should be: * to become established as the best in its field * to be the largest in its market Comment on

Ranking of Decision Packages The ranking procedure is employed to establish a rank priority of decision packages in the organization. Throughout the ranking procedure managers

Describe the important role that the corporate level strategy has in relation to the development of the business and functional strategy in a multi -business organization

What are the objectives of excellence teams and minicompanies? Did the companies achieve these objectives?estion #Minimum 100 words accepted#


Full Service Recourse Factoring : In this kind of factoring the client has to bear the risk of default made through the debtors. There the factor had advanced funds against book de

Cascade Water Company (CWC) currently has 30 000 shares of common stock outstanding, trading at a price of R42 per share.

Conditions necessary in a control cycle There are four necessary conditions that must be satisfied before any system can be said to be controlled. Such are as follows: (1) O

Use of Computer Systems in Linear Programming When a computer is to be used for linear programming there are a number of steps: (1) Development of the equations which descri

a cost-allocation base may be any of the following except: a. cost driver b. cost pool c. way to link indirect cost to a cost object d. nonfinancial quantity