Inventory planning & control under uncertainty, Managerial Accounting

Assignment Help:

Inventory planning & control under uncertainty

The basic EOQ model assumes that all the parameters (elements) in the model are certain (i.e. can be predicted precisely in advance). Such parameters are:

(a) Demand or usage of stocks
(b) Lead times.
(c) Holding costs per unit, ordering costs per order and costs per unit.

In reality however, stock demand, supplies lead times and cost date are not known with certainty. Accordingly to make the models applicable to real situations we must consider uncertainty when planning for inventory levels.

To protect itself from conditions of uncertainty, a firm will maintain a level of safety stocks for raw materials, work-in-growth and completed goods stocks. Therefore safety stocks are the quantity of stocks which are carried in excess of the expected use throughout the lead time to give a cushion against running out of stocks. Thus the reorder point is computed as safety stock plus the average usage during the lead time

i.e. reorder point = Average usage during lead time + safety (buffer) stock.


Related Discussions:- Inventory planning & control under uncertainty

Management''s statement of responsibility, 1. A firm's independent auditors...

1. A firm's independent auditors have the responsibility to: a. assess the firm's accounting policies. b. ascertain the firm's profit potential. c. uncover all fraudulent

Predetermined Overhead Rate, Logan Products computes its predetermined over...

Logan Products computes its predetermined overhead rate annually on the basis of direct labor hours. At the beginning of the year, it estimated that 39,000 direct labor-hours would

Open account, Open Account Credit sales are usually on open account tha...

Open Account Credit sales are usually on open account that implies which the seller ships the goods to the buyer and afterward sends the bill invoice. Consignment In th

Value chain analysis , VALUE CHAIN ANALYSIS Every firm is a collection...

VALUE CHAIN ANALYSIS Every firm is a collection of activities that are executed to design, generate, market, deliver and support its products or services. Value chain analysis

Homework, IF net income totaled $18,000 for one year, beginning assets were...

IF net income totaled $18,000 for one year, beginning assets were $100.000 and ending assets were $140,000, then Return on Assets for the year as a percentage will be?

Activity –based techniques, Explains how activity –based techniques can be ...

Explains how activity –based techniques can be used to improve performance

Difference between marginal costing and absorption costing, Question: A...

Question: A friend of yours is revising for his examination in management accounting and needs some help from you. He asks you the following questions. Write brief notes on eac

Ilustrate the debt equity ratio, Debt equity ratio Meaning: this rati...

Debt equity ratio Meaning: this ratio establishes a relationship among long term debts and share holders funds. Objective: the objective of computing this ratio is to me

prepare an income statement, Adm2341 manufactures and sells four different...

Adm2341 manufactures and sells four different products. The following data are extracted from the most recent financial statements:   Products

Annual cash flows over the expected life of the equipment, The production d...

The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchas

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