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
Advantages of Floatation of New Shares 1. It facilitates the matter of securities to increase new finance, creation a company less dependent on retained earnings and banks.

1) Calculate the yield to maturity of a 7-year $1,000 par value bond with an annual coupon rate of 7.5% and a current price of $1,125. Provide the spreadsheet solutions for both an

Shareholders and Creditors Shareholders And Creditors or bond or debenture holders Bondholders are lenders or providers of long term debt capital.  Usually they will provi

What are the characteristics of an efficient market? The word market efficiency refers to the speed, ease, and cost of trading securities. In a well-organized market, securitie

Task: Decide upon 2 mutual exclusive projects. Calculate the income statement, balance sheet, and statement of cash flows for all year Calculate the NPV, IRR, and

One of the projects the US loan would fund is to build earthquake-resistant buildings. The project will begin in March 2013, last for two years and is expected to have the followin

Analysis of the bond issue (a) Show that the price of the bond is equal to that of a portfolio which contains i) a long position in an option-free but otherwise identical co

Consider the following capital market yielding 1% per year and a mutual fund consisting of 60% stocks and 40% bonds. expected return of stocks 9.75% per year and expected return on

Given the following Present Value Plot for Projects A and B, which are mutually exclusive projects, answer the following questions: (i) What is the DCFROR for Project A? fo

thew amount of money investedin a retirement fund is an example of