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

2010, how to journalize entry. purchased $150,000 of raw materials on accou...

how to journalize entry. purchased $150,000 of raw materials on account, terms of 2/20; n/30

Prisoner''s dilemma- non-zero sum games, Prisoner's Dilemma To understand...

Prisoner's Dilemma To understand the prisoner’s dilemma, let’s consider a story as follows: Two peoples are arrested for a crime. The police lack enough evidence to convict ei

Research, Activity Based costing and Functional Based Costing compare them ...

Activity Based costing and Functional Based Costing compare them together in terms of efficiency, advantages, disadvantages and accuracy.

Return on investment-residual income, Return on Investment and Residual Inc...

Return on Investment and Residual Income This is a traditional approach to performance measurement given by: ROI =     Income          Invested Capital               (m

Explain the types of standards, Explain the Types of standards The foll...

Explain the Types of standards The following is the brief description of various types of standards: 1) Basic standards: these are the standards which are assumed to remai

Moore company uses process costing, Moore Company uses process costing.  Th...

Moore Company uses process costing.  The following information was available for October: During October, 1,000 units were started, and costs incurred during the month were

Implementation of the decisions, Implementation of the Decisions Once a...

Implementation of the Decisions Once alternative courses of action have been chosen, they must be implemented as part of the budgeting procedure. The budget is a financial plan

Illustrate the techniques used in management accounting, Determine the The ...

Determine the The tools and techniques used in management accounting 1. Financial policy and accounting : every concern has to take a decision about the sources of raising fun

Compute the operating cycle, Under this method, approximation is made of pa...

Under this method, approximation is made of payments and cash receipts in the ensuring period. The dissimilarity of these payments and receipts indicates deficiency or surplus of c

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