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

What are the resons to use variance analysis, What are the Resons to use Va...

What are the Resons to use Variance analysis Variance analysis should be a continuous process for following reasons: 1) Labor rates, salary levels etc, changes due to union

Operating cycle period, Period of operating cycle implies that total sum of...

Period of operating cycle implies that total sum of number of days included in the various stages of operation commencing from the purchase of raw materials and ending along with c

State the steps for standard costing system, State the steps for Standard c...

State the steps for Standard costing system standard costing system involves the following steps 1) Setting-up of standards for each element of cost: standards should be s

Explain the break even point pricing, Break even point or B.E.P. pricing me...

Break even point or B.E.P. pricing method : Break even point is the volume of sales at which the total sale revenue of the product is equal to its total cost. In other words, it

Letter of credit, In the documentary bills the seller faces a lot of risk a...

In the documentary bills the seller faces a lot of risk as the risk of non-acceptance or non-payment of goods. This poses a main risk for the seller. These additional securities in

Explain the objectives of management accounting, Explain the Objectives of ...

Explain the Objectives of management accounting? 1. Planning and policy formulation: the object of management accounting is to supply necessary data to the management for fo

What are the limitation of break even charts, Limitation of break even char...

Limitation of break even charts Despite many advantages a break even chart suffers from the following limitations: 1) A break even chart is based upon a number of assumption

Capital budgeting – planning investments, Project C would involve a current...

Project C would involve a current outlay of $50,000 on equipment and $15,000 on working capital. The investment in working capital would be increased to $21,000 at the end of the f

Managerial Accounting, Computing equivalents units and assigning costs to c...

Computing equivalents units and assigning costs to completed units and ending work in process; no beginning inventory or cost transferred in (30 -45min) Sue Electronics makes CD p

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