When to order-material control, Managerial Accounting

Assignment Help:

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.

 

 

 

 


Related Discussions:- When to order-material control

Determine the profitability ratios, Profitability ratios The primary ob...

Profitability ratios The primary objective of a business under taking is to earn profits. Profit earning is considered necessary for the survival of the business. A business re

Production during the period, Coolidge Company estimates that its productio...

Coolidge Company estimates that its production workers will work 125,000 direct labor hours during the upcoming period and that overhead costs will amount to $500,000. What predete

What is programmer budgeting, What is Programmer budgeting It is a comb...

What is Programmer budgeting It is a combination of programming and systems refers to the activity and system analysis refers to cost benefit analysis or operations research. I

Prepare a revised performance report, Yuma foods acquire Aldo's tortillas s...

Yuma foods acquire Aldo's tortillas several years ago. Aldo's continued to operate as an independent company, except that Yuma foods has exclusive authority over capital investment

Management, Discuss the different roles played by the qualitative and quant...

Discuss the different roles played by the qualitative and quantitative approaches to managerial decision making

Cost concept, Cost concept . techniques of costing . absorption costing

Cost concept . techniques of costing . absorption costing

Difference between direct labour and indirect labour, Difference between Di...

Difference between Direct labour and Indirect labour Direct labour:- Labour which plays an active and direct part in the production of a particular commodity is called di

Feedback control system, Feedback Control System Feedback is informatio...

Feedback Control System Feedback is information about actual achievements or actual results produced within the organization (e.g. management control reports) with the purpose

Budgetary styles, their definitions and the advantages and disadvantages

their definitions and the advantages and disadvantages

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