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

Cost Analysis purposes For purposes of cost analysis, the desegregation of the generic value chain into individual value activities should reflect three principles that are not

Accounting Profit is a company's sum total earnings, computed according to Generally Accepted Accounting Principles (GAAP), and involves the explicit costs of operating business, l

State the steps for Standard costing system standard costing system involves the following steps 1) Setting-up of standards for each element of cost: standards should be s

Explain Out of pocket cost A cost which will have to be paid to outsides as against cross such as depreciation, which do not require any cash payment this cost is relevant in t

What is the fastest time financial accounting assignment can be done by your company? It will be a report type format but overview type without going into depth.


What does it mean when we say consistency is the central feature of economic rationality?

X's Strategy X will like to divide his play between his rows in such a way that his expected winnings or losses when Y plays the first column will be equal to his expected winn

Negotiated prices Where market based prices are not applicable, it has been argued that allowing managers to bargain with each other in order to establish transfer prices devel