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

Evaluate a proposed investment, Q. Evaluate a proposed investment? BMP ...

Q. Evaluate a proposed investment? BMP Consulting (BMPC) conducted an analysis of Delta Corp. and found that the firm consists of two different divisions: Pet Lovers, a pet sup

What are the advantages of incremental budgeting, Advantages of incremental...

Advantages of incremental budgeting a) The budget is stable and change is gradual b) Managers can operate their departments on a steady basis c) The system is relatively

Explain the terms - maintenance and improvement, Explain the terms - mainte...

Explain the terms - maintenance and improvement Maintenance ; under the maintenance function, the management must first establish policies rules directives and standard operat

Extensions to linear programming, Extensions to Linear Programming In man...

Extensions to Linear Programming In many real situations the solutions to linear programming models make sense only if they have integer values. Rounding off the linear programmi

Accounting period, 1. In common, accounting period is the time period refle...

1. In common, accounting period is the time period reflected by a series of financial statements.  2. In terms of taxation, it is twelve-month period a taxpayer uses to know

Explain the methods of pricing, Explain the Methods of pricing The fol...

Explain the Methods of pricing The following methods are used for intra company transfer pricing: 1) Total cost method: transfer is made at absorption cost which is the t

Special orders, Issa Company manufactures a personal computer designed for ...

Issa Company manufactures a personal computer designed for use in schools and markets it under its own label. Issa has the capacity to produce 25000 units a year but is currently p

Explain the ratio analysis according to kosher, Explain the Ratio analysis ...

Explain the Ratio analysis according to kosher A ratio is the relation of the amount a to another b expressed as the ratio of a to b; a: b (a is to b) or a as simple fraction i

Battle of the sexes game, Battle of the Sexes game To understand Battle...

Battle of the Sexes game To understand Battle of the Sexes game, let’s consider a story as follows: Two players (a couple) wish to go to an event together but disagree about

Special order : Manufacturer, Viti Ltd, located in southern Viti Levu, manu...

Viti Ltd, located in southern Viti Levu, manufactures a variety of industrial valves and pipe fittings that are sold to customers in the eastern states. Currently, the company is o

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