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

Federal funds market-federal funds rate and discount rate, What does reserv...

What does reserve requirements and the discount rate? What the Fed Does: Reserve needs and the Discount Rate The federal funds market Financial market which allows banks

The equity discount rate , Assume IBM pays out all earnings as dividends. ...

Assume IBM pays out all earnings as dividends. Today is t = 0 and IBM just paid a $2 dividend on $2 of earnings. The market expects dividends will grow each year by 5% until t = 4

Significant features of partnership, Significant Features of Partnership ...

Significant Features of Partnership 1) The capital is contributed by the partners and no appeal is made to the public. 2) Like the sole proprietorship, a partnership has a l

What are the advantages of listing on stock exchange, What are the Advantag...

What are the Advantages of Listing on Stock Exchange (i) Detailed information about company is available. (ii) Information increases activity of purchase and sale of the sec

Shareholders and creditors, Shareholders and Creditors Shareholders A...

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

Financial performance analysis, given profit margin 7%, total asset turnove...

given profit margin 7%, total asset turnover is 1.94, Return on equity is 23.7%, what is the debt equity ratio

Finance Instrumant and Market , What factors would affect company consider ...

What factors would affect company consider in choosing option for capital-raising

Calculate the net present values and irr, Task 1 (I) A plc is an investme...

Task 1 (I) A plc is an investment organisation which is considering 2 potential new investments. These are mutually exclusive options in that the acceptance of any one investment

Traditional approach of financial management, traditional financial managem...

traditional financial management are concerned with raising funds and optimum utilisation.do you agree?explain.

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