When to order-material control, Managerial Accounting

Assignment Help:

When to order-Material control

If deliveries from suppliers normally take two weeks to arrive, then replenishment orders should be placed with them when the level of stocks represents two weeks' supply. For illustration, if usage is 200 units a week, an order (the EOQ) will be placed when the stock level falls to 400 units. Figure below illustrates that, with certain knowledge of usage and lead time, delivery takes place just as stock is exhausted.

1811_digram1.jpg



Figure: Stock levels when usage and replenishment times are known

1349_diagram2.jpg



Figure: Stock levels when usage and replenishment are uncertain

Lead times and usage may not be stable and provision against running out of stock becomes necessary figure shown above Safety stocks have a cost, however, and this has to be balanced against the cost of running out of stock. `Stock outs' may cause loss of customers and the probability of this happening at various levels of safety stock must be estimated. The point, at which the cost of carrying safety stocks plus the cost of `stock outs' is lowest, indicates the safety stock level. Notice that uncertainty causes the reorder level to be at a higher level to include the required safety stock.

 

 

 

 


Related Discussions:- When to order-material control

Explain the break-even analysis, Explain the Break-Even Analysis  The s...

Explain the Break-Even Analysis  The study of cost volume profit analysis is often referred to as break-even analysis and the two terms are used interchangeably by many. This i

Control-role of management accountant , Control Control includes a ...

Control Control includes a comparison of actual performance with the plan so that deviation from the plan can be identified and corrective action taken. It can be define

Public deposits, Deposits from the public are one of the important sources ...

Deposits from the public are one of the important sources of finance mainly for fine established big companies along with a vast capital base. The period of public deposits is rest

Costing, Costing Cost accounting can be described as the collectio...

Costing Cost accounting can be described as the collection, interpretation of cost and assignment. In succeeding chapters, you will learn about alternative costing techniq

Cost classifications, How do the different cost classifications can assist ...

How do the different cost classifications can assist the management

Explain functional classification of ratios, Explain Functional classificat...

Explain Functional classification a)  Liquidity ratio: these are the ratio which measures the short term solvency or financial position of a firm. These ratios are calculati

Overhead rate , During 2010, Jackson Company estimated that its manufacturi...

During 2010, Jackson Company estimated that its manufacturing employees would work 80,000 direct labor hours. During the year the company actually worked 75,000 direct labor hours.

Accounting exam, hello do your staff help with exams ?

hello do your staff help with exams ?

Problrm question, The std cost of chemical mixture~PQ is as follows: 40% of...

The std cost of chemical mixture~PQ is as follows: 40% of material P @rs.400/kg 60% of material Q @rs.600/kg A std loss of 10% is normally anticipated in pdn. The followinng parti

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