Determine carrying cost, Business Management

Assignment Help:

Example: You  are given  the followings  information in regard to an item:

Annual usage     = 20,00 units.

Ordering cost     = Rs. 160 per order

 Carrying cost    = 20 % of the average inventory investment

 Unit  cost          =  Rs. 2

 Lead time         = 10 working  days

Total working  days = 250  per annum

It is  observed from  the past date that the demand during lead time has been up to  a maximum  level  of  150 unit  per day. Keeping this level  in mind what safety stock would  you recommend ? also  determine : 

a. The re order  level when the safety stock level suggested by you is kept in stock.

b. Average level of inventory stock help

c. The ordering and carrying costs associated with this fixed order inventory  policy .

Solution;

 We   know  safety stock     SS  =  max  DDLT - average DDLT

 With maximum demand per day = 150 units,

 Average demand per day = 20,000/250= 80 units

Lead time = 10 days

 We have  Maximum DDLT =  150x 10 = 1000units and

 Average DDLT = 80x 10 = 800 units

                                                 SS = 1500- 800= 700 units

1.       Re order  level           =SS  + average DDLT = 700+ 800= 1500 units

2.       Average stock level = SS +Q* / 2

 

        Q * =  2x 160x 20, 000/x0.20x2x = 4, 000 units

 From the  given  information            

 Thus average stock level    = 700 + 4000/ 2 = 27 00 units

3.  Ordering cost    = 20, 000/ 4000 X 160 = Rs. 800

4.  Carrying cost    = 2700x 0.40= Rs. 10 80

5.  Total cost  = 800+1080+ =Rs 18880


Related Discussions:- Determine carrying cost

Discuss the areas in which libraries can cooperate, QUESTION 1 Library ...

QUESTION 1 Library cooperation is a well-integrated activity in developed countries. Discuss the areas in which libraries can cooperate. QUESTION 2 Ranganathan has sugg

Difference between disaster recovery and business continuity, 1. Differenti...

1. Differentiate between disaster recovery and business continuity. In your answer provide examples of the processes and technology involved. 2. The decision to choose a DAS, NA

Tax differential theory, Tax differential theory: a method of valuing share...

Tax differential theory: a method of valuing shares with constant growth to DI/P0 Xg An investor is faced with 2 investment choices: First choice of shares with market price(po)=Rp

Domestic market-based organization, Scenario - Imagine you are a newly grad...

Scenario - Imagine you are a newly graduated MBA who has just been appointed as a special consult to the CEO of a major domestic market-based organization. They wish to expand into

What are the important objectives of job evaluation, What are the important...

What are the important objectives of job evaluation? Objectives of job evaluation are as given below: 1. Chooses the relative values of various jobs in an organization. 2

Public systems management, luther gulick and lyndall uruick identified seve...

luther gulick and lyndall uruick identified seven management functions coined POSDCORB,explain the role of the model in converting a given policy into useful outcomes

Quantitative analysis for managerial decision making, what is the role and ...

what is the role and significance of quantitative techniques in modern management?

OD intervention process, Which of the following should be avoided in a con...

Which of the following should be avoided in a confrontation meeting and why? a. working on relevant problems b. members from different departments in same group c. top manager sep

Why is the performance appraisal important, Why is the performance appraisa...

Why is the performance appraisal important? Significance of performance appraisal: • This is helpful into operational decisions of personal management relating to pay rai

Short-term, discuss the three approaches to the short-term financing proble...

discuss the three approaches to the short-term financing problem and provide relevant example of each

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