Uncertainty of demand-determining the safety stocks level, Managerial Accounting

UNCERTAINTY OF DEMAND

Demand is the most troublesome variable to predict accurately. Actually, demand may fluctuate from day to day, from week to week or from month to month. Thus, the firm takes the risk of running out of stocks if there are sudden increases in demand. Hence safety stock is the extra inventory held as a buffer of protection against the possibility of stock due to higher demand.

However, a larger inventory of safety stock will involve a higher inventory carrying costs, and on the other hand, the higher safety stock will decrease stock-out costs. Therefore one has to make a balance between these two costs in order to find out an optimal safety costs.

The optimum safety-stock level exists where the costs of carrying an extra unit are exactly counter balanced by the expected stock-out costs. This would be the level that minimizes the annual total stock-out and carrying costs.

Posted Date: 12/6/2012 6:33:59 AM | Location : United States







Related Discussions:- Uncertainty of demand-determining the safety stocks level, Assignment Help, Ask Question on Uncertainty of demand-determining the safety stocks level, Get Answer, Expert's Help, Uncertainty of demand-determining the safety stocks level Discussions

Write discussion on Uncertainty of demand-determining the safety stocks level
Your posts are moderated
Related Questions
Elimination of non-value added activity JIT manufacturing can be described as a philosophy of management, dedicate to the elimination of waste. Waste is stated as anything whic

Steps in Strategic Cost Analysis 1) Recognize the suitable value chain and allocate costs and assets to it. 2) Identify the cost drivers of each value activity and how they int


Input or exogenous variables These are variables of two types: 1) Controlled variables: These are variables that can be controlled by management. By changing the input

Suppose the spot price of gold is $1700 per ounce. The futures price for delivery in six months is $1712, while the futures price for delivery in one year is $1720. The interest ra

SENSITIVITY ANALYSIS OF EOQ MODEL Sensitivity Analysis is regarded with the manner in which those results of solutions change in response to change in model parameters.

Prepare an estimation of working capital needs from the subsequent information of a trading relates with: (a) Projected Annual Sales 1,00,000

Describe Committed fixed costs Committed fixed costs are those fixed costs that arise from the possession of 1. Plant, building and equipment (for example, depreciation, re


PART 1 Carlton Ltd operates at capacity and makes glass-topped dining tables and wooden chairs which are then typically sold as sets of four chairs with one table. However, some c