Order point formula, Financial Accounting

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Order Point Formula

The analysis discussed above tends to be somewhat cumbersome when probability distributions are most complex and dependent and multi-period cases are involved. In view of that several firms would search the subsequent formula helpful for calculating the reorder point.

Recorder Point = S (L) + √(SR (L))

 Here S = Usage

L = lead time required to acquired additional inventory as the order is placed

R =average quantity ordered

F = stock-out acceptance factor.

The value of F, the stock-out acceptance factor is based on the stock-out percentage rate.


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