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

Critique of performance measurement, Critique of Performance Measurement ...

Critique of Performance Measurement This section brings together material from preceding data in this lesson in order to provide a critical appraisal of performance measurement

Working capital management, stanley shoe company established a line credit ...

stanley shoe company established a line credit with a local bank. the maximum amount that can be borrowed under the terms of the agreement is $100000 at an annual rate of 12%. a co

Make or buy, The Rohr Company’s old equipment for making subassemblies is w...

The Rohr Company’s old equipment for making subassemblies is worn out. The company is considering two courses of action: (a) Completely replacing the old equipment with new equipme

Job order costing, Morrow Company applies overhead based on direct labor ho...

Morrow Company applies overhead based on direct labor hours. At the beginning of the year, Morrow estimates overhead to be $620,000, machine hours to be 180,000, and direct labor h

Post Cost, What is the correct formula for Post Cost?

What is the correct formula for Post Cost?

What is the amount of liabilities, Find the value of the following: a.  ...

Find the value of the following: a.    If the total assets are Rs. 87,000 and the liabilities are Rs. 47,000, find out the amount of capital. b.    If the capital of propriet

Stating dependent variable-cost estimating relationship, State (or select) ...

State (or select) the dependent variable (Y) Will the CER be employed to estimate price, labor hours, cost, material cost, or some other measure of cost? Will the CER be employ

Management accounting , Management Accounting 1) Which is concerned wi...

Management Accounting 1) Which is concerned with provision of information to people within the organization to help them make better decisions? Management accounting is concer

Trade credit, It is a spontaneous source of finance that is commonly extend...

It is a spontaneous source of finance that is commonly extended to business organization depending on the custom of the competition and trade prevailing within the organization and

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