Uncertainty and safety stocks, Finance Basics

Uncertainty and Safety Stocks

Usually requirements may not be certain and thus the firm holds safety stock to safeguard stock out cases.The safety stock guards against delays in receiving orders.  Nonetheless, carrying a safety stock has costs or it increases the average stock.


Consider illustration one and suppose that management desires to hold a minimum stock of 10 units or this stock is in hand at the starting of the year.


a) Find out the re-order level

b) Find out the total relevant costs

Suggested solution

a) R       =       (DL/360) + S

Whereas:     S is the safety stock

                   =       ((2,000/360)  * 7) + 10

                   =       49 units

 b) The average inventory = ½Q + S

          TC     =       (½Q + S)Cn + D/QCo

                   =       [½(100) + 10]20 +  (2,000/100) * 50

                   =       1,200 + 1,000

                   =       Shs.2,200

Posted Date: 1/31/2013 8:12:47 AM | Location : United States

Related Discussions:- Uncertainty and safety stocks, Assignment Help, Ask Question on Uncertainty and safety stocks, Get Answer, Expert's Help, Uncertainty and safety stocks Discussions

Write discussion on Uncertainty and safety stocks
Your posts are moderated
Related Questions
Opportunity Cost or Residual Loss It is the cost due to the failure of both parties to act optimally like as in example of A. Lost opportunities because of incapability to

Net Present Value Method - DCF Technique The method discounts outflows and inflows and ascertains the total present value via deducting discounted outflows from discounted inf

At t = 0, a 3-year, 7% coupon corporate bond with face value $1,000 is trading at a credit spread of 15%. The risk free rate is constant and equal to 4% for all maturities. The rec

Problem: (a) Describe why a critical analysis of the following is important while reading a research article: (i) The author, (ii) The date of publication. (b) What do

In the present case, we need to take a decision about implementing one of the available two options, based on various factors. The available two options are either to complete a se

Question 1: (a) What do you meant by the term ‘Life Insurance Contract'? (b) Many people prefer to choose Single life policies compared to Joint life policies. Why is t

Solutions - Shareholders and Management Conflict Conflicts between management and shareholders may be resolved as follows like: 1. Pegging or attaching managerial compens

Government - Measuring Business Performance Government The Government is interested particularly in utility companies as KPLC, KPTC and such will offers public services -

A home buyer lists her home at a 7% commission rate and wants to net 45,000 after paying the mortgage balance of 68,000 and the broker''s commission. To the nearest dollar, what sh

Your client, a man, is currently 35 years old and he wants to retire when he is 65 years old (exactly 30 years from now). He would like his retirement income to be equivalent to