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

Evaluate the importance of business processes , Evaluate the importance of ...

Evaluate the importance of business processes in delivering outcomes based upon business goals and objectives.   1)     How would you classify the GE culture in terms of the

Investment portfolio strategy, From your past investment portfolio strategy...

From your past investment portfolio strategy and your explanation to your client, outline the basis of your future portfolio for the same principal and indicate the rationale for y

Explain the risk-taking capability of an entrepreneur, Explain the risk-tak...

Explain the risk-taking capability of an entrepreneur. Risk-Taking Capability: Risk is inseparable and inherent element of entrepreneurship. He supposes about the uncerta

Accounting system to classify business transactions, Q. Accounting system t...

Q. Accounting system to classify business transactions? Question Jerry accepts a formal, written promise from an employee of his hotel to pay a certain sum. The employee

Business Leadership, In a paper of 750-1,000 words, describe the strategic ...

In a paper of 750-1,000 words, describe the strategic marketing process and its three key phases of planning, implementation, and control. Address the following: How does the mark

Explain a few decision-making models in management, Question: (a) Expla...

Question: (a) Explain a few decision-making models in management, giving examples of management decisions in each case. (b) The three main management styles which belong to

Risk and Return, In a report not to exceed five double-spaced typewritten p...

In a report not to exceed five double-spaced typewritten pages, analyze the results obtained from the three simulations performed, identify the source of the differences, and selec

What are the differences between marketing and selling, What are the differ...

What are the differences between marketing and selling? Marketing and Selling: The marketing concept is a management orientation which holds that the key chore of the org

Different types of communication, Explain the different types of communicat...

Explain the different types of communication with relevant examples.

Explain profitability analysis models, Question 1 Intermediation is the pr...

Question 1 Intermediation is the process of linking savers of money with those who are in need of money. Explain the intermediation process of banks Question 2 Business loans

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