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

Illustrate the term accounting, Illustrate the term accounting? Accou...

Illustrate the term accounting? Accounting: It is an art of classifying and recording data. Here, the data considers to transactions consisting of monetary or financial v

Definition of liquidity problem, An examination of up to three reasons is a...

An examination of up to three reasons is adequate for maximum marks. a)  Cash Flow estimate for Cottam Stationers Aug   Sep Oct Nov

Explain the importance of oral communication, Question 1: a) Discuss cr...

Question 1: a) Discuss critically on : i) barriers to communication within an organisation. ii) ways to overcome these barriers. (b) State i) the principles and

Internal integration - organizational culture, Internal Integration - organ...

Internal Integration - organizational culture Culture helps members develop a collective identity and know how to work together effectively. It is culture that guides day-to-d

Benefits of computer aided design, Explain the benefits of Computer Aided D...

Explain the benefits of Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM) to an organisation Reduced material wastage By precise design and pattern making

Prepare a business report with statistics of a company, You are a business ...

You are a business analyst working for a company called Combined XYZ Pty Ltd. You have been asked to prepare a business report with statistics in it for the managing director. He w

Business analysis using triple triangle framework, how to write a company a...

how to write a company analysis in light of the Triple triangle Framework?

PRODUCT, WHAT ARE THE FOUR STAGE IN PRODUCT LIFECYCLE

WHAT ARE THE FOUR STAGE IN PRODUCT LIFECYCLE

What do you mean by managerial motivation, What do you mean by Managerial M...

What do you mean by Managerial Motivation? Managerial Motivation: This motivation is the means or inducements that impel or inspire a person to intensify his willingness

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