Uncertainty and safety stocks, Finance Basics

Assignment Help:

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.

Demonstration

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.

Required

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


Related Discussions:- Uncertainty and safety stocks

Potential investors - measuring business performance, Potential Investors -...

Potential Investors - Measuring Business Performance Potential investors These parties are interested in a company in total both on long and short term basis in particula

Boq, management and directors

management and directors

Disadvantages of payback period, Disadvantages of Payback Period 1. Do...

Disadvantages of Payback Period 1. Does not receive into account time value of money and supposes that a shilling obtained in the 1 st year and in the N th year have the sim

Net present value method - dcf technique, Net Present Value Method - DCF Te...

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

Finance, If you inherited $ 45,000 today and invested all of it in a securi...

If you inherited $ 45,000 today and invested all of it in a security that paid a 7 percent rate of return, how much would you have in 25 years?

Project apparisal, challenges your likely to face when apparising a project...

challenges your likely to face when apparising a project on the implemtation stage

Credit Limit, Suggestion regarding Credit limit. Should it be approved or n...

Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.

Vincent mind set, if u were the professor wht your opinion about vincent mi...

if u were the professor wht your opinion about vincent mind stage

Tarniwala and dealer in non-cleared securities, Tarniwala and Dealer in N...

Tarniwala and Dealer in Non-cleared Securities Tarniwala: He/she is a specialist or jobber in selected shares. He/she makes market i.e. provide continuity to dealings. They

Functions of capital markets, Functions of Capital Markets Functions o...

Functions of Capital Markets Functions of Capital Markets are as: 1. Providing long term funds that are essential for investment decisions. 2. Provide advices to investo

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd