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

Algebraic analysis, ALGEBRAIC ANALYSIS The supposition of linear cost b...

ALGEBRAIC ANALYSIS The supposition of linear cost behavior allows use of straight-line graphs and simple linear algebra in cost-volume study. The net cost is a semi-variable c

Linear programming, Linear Programming     This section introduces the ge...

Linear Programming     This section introduces the general method called the simplex algorithm, which is designed to solve any linear program. The information that can be secured

Account analysis-high low method-cost estimation method, Account analysis (...

Account analysis (Inspection of accounts) method: This method requires that departmental managers and the accountant inspect each item of expenditure within the accounts for s

Coca Cola Balance Sheet, Required: 1. Using the information provided prepa...

Required: 1. Using the information provided prepare a Balance Sheet. Separate the current assets from non-current assets and provide a total for each. Also separate the current li

Standerd costing, Ask queThe standard cost of chemical mixture ~ PQ’ is as ...

Ask queThe standard cost of chemical mixture ~ PQ’ is as follows: 40% of material P @ Rs. 400 per kg. 60% of material Q @ Rs. 600 per kg. A standard loss of 10% is normally anticip

Zero based budgeting, areas where zero based budgeting can be effectively u...

areas where zero based budgeting can be effectively used?

Calculate the break-even point and safety margin, The Braggs & Struttin' Co...

The Braggs & Struttin' Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the "Snooper" are given below, based on sales of

Qt, x+2y+3z=6 2x+4y+z=7 3x+2y+9z=14

x+2y+3z=6 2x+4y+z=7 3x+2y+9z=14

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