When to order-material control, Managerial Accounting

When to order-Material control

If deliveries from suppliers normally take two weeks to arrive, then replenishment orders should be placed with them when the level of stocks represents two weeks' supply. For illustration, if usage is 200 units a week, an order (the EOQ) will be placed when the stock level falls to 400 units. Figure below illustrates that, with certain knowledge of usage and lead time, delivery takes place just as stock is exhausted.

1811_digram1.jpg



Figure: Stock levels when usage and replenishment times are known

1349_diagram2.jpg



Figure: Stock levels when usage and replenishment are uncertain

Lead times and usage may not be stable and provision against running out of stock becomes necessary figure shown above Safety stocks have a cost, however, and this has to be balanced against the cost of running out of stock. `Stock outs' may cause loss of customers and the probability of this happening at various levels of safety stock must be estimated. The point, at which the cost of carrying safety stocks plus the cost of `stock outs' is lowest, indicates the safety stock level. Notice that uncertainty causes the reorder level to be at a higher level to include the required safety stock.

 

 

 

 

Posted Date: 12/6/2012 5:34:47 AM | Location : United States







Related Discussions:- When to order-material control, Assignment Help, Ask Question on When to order-material control, Get Answer, Expert's Help, When to order-material control Discussions

Write discussion on When to order-material control
Your posts are moderated
Related Questions
Explain decision unit - zero base budgeting Decision units: an organization is divided among decision units. The manager of the decision unit justifies the relative budget

What are the features of performance budgeting The main features of performance budgeting are:  a)  Classification into functions activities or programmers.  b)  Specifyi

STEPS OF DEVELOPING A COST ESTIMATING RELATIONSHIP Firmly speaking, a CER is not a quantitative method. It is a framework for using suitable quantitative methods to quantify a

Prerequisites of a sound variances analysis system A variance analysis system would be good enough in controlling costs and evaluation performances if the following requirement

Determine important factors while praparing sales budget The possible factors to be taken into account while preparing a sales budget are discussed as follows: 1) Past sales

A manufacturing  company  needs  2500 units  of a particular component every  year. The  company buys  it at the rate of Rs. 30 per  unit.  The order processing cost for this part

opening stock unit were 8500 and closing stock units were 6750.frofit of 61200 using managerial costing.fixed overhead absorbed rate was 3 pr unit.what is the profit using absorpti

Hi there, i am looking an expert to make my assignments for this subject and i do have other subjects as well. Let me know how you can go through my assignment.

What are the Changing role of management accounting 1. Focus on customer scarification: customer satisfactions are continuously gaining high priority in management thinking i

Engineering method These methods are based on the use of engineering analysis of technological relationship between inputs and outputs e.g. method studies and time and motion s