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Chapter 8 Fin242 Fin Notes - Compress

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39 views4 pages

Chapter 8 Fin242 Fin Notes - Compress

Uploaded by

abdulmuaafi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 8 FIN242 - FIN NOTES

Business studies (BA111)

CHAPTER 8: INVENTORY MANAGEMENT.


CALCULATIONS
1. Economic Order Quantity (EOQ) – the optimal quantity of inventory that will
minimize total inventory costs.

2𝑆𝑂
EOQ or Q = √
𝐶
= units

Where, S = annual usage/ sales/ purchase/ demands


O = annual ordering cost or fixed cost.
C = annual carrying cost per unit

2. Total Carrying Cost (TCC) – the cost of carrying each unit of inventory in the firm’s
stock per-period.

𝑄
TCC = [ 2 + 𝑆𝑆] x C = RM OR TCC = (C) (P) (Q/2) * if there is no ss.

Where, SS = Safety Stock


Q = EOQ
P = Price

3. Total Ordering Cost (TOC) – the fixed clerical cost of placing and receiving and
ordering (such as processing, telephoning, typing, mailing, etc)

𝑆
TOC = [𝑄] x O = RM

4. Total Inventory Cost (TIC) – the sum of total carrying costs and total ordering costs.

TIC = TCC + TOC = RM

5. Reorder Point (ROP) – to ensure that inventories arrived in time before safety stock is
affected.

*in day
𝑆
ROP = [ 𝑥 𝐷𝑇 𝑖𝑛 𝑑𝑎𝑦𝑠] + 𝑆𝑆 = 𝑢𝑛𝑖𝑡𝑠
360

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*in week
𝑆
ROP = [ 50 𝑥 𝐷𝑇 𝑖𝑛 𝑤𝑒𝑒𝑘] + 𝑆𝑆 = 𝑢𝑛𝑖𝑡𝑠

Where, DT = Delivery Time

6. Frequency of Orders (FO) – lag time in days between orders

360
FO = = times
𝑛𝑜.𝑜𝑓 𝑜𝑟𝑑𝑒𝑟𝑠

𝑆
Where, no. of orders =
𝑄

7. Average Inventory (AI)

AI = EOQ/2 + SS
= units

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Example Questions.
SEPTEMBER 2013 – P.B Q.3.a
Hafiz Ptd Ltd sells 8,500 Maclaren buggies per year. Based on the company’s Policy, a safety
stock of 5% from yearly sales is to be maintained. The cost of carrying a Maclaren Buggy is RM15
per unit per year. It costs RM78 to prepare and receive an order. The delivery is 11 days. The
inventory planning period is one year. Assume 360-days per year.
i. Determine the optimal EOQ.
ii. What is the average inventory?
iii. What is the reorder point?
iv. What is the company’s total inventory costs for the year?

Working answer:

2𝑆𝑂
i. EOQ or Q = √ 𝐶

2(8500) (78)
=√ 15

= 297 units.

ii. Average inventory = EOQ/2 + SS


= 297/2 + (0.05 x 8500)
= 573.5 units

𝑆
iii. Reorder Point = [ 360 𝑥 𝐷𝑇 𝑖𝑛 𝑑𝑎𝑦𝑠] + 𝑆𝑆
8500
` =[ 𝑥 11] + 425
360
= 684.72 units

iv. Total Inventory Cost (TIC) = TCC + TOC

𝑄
TCC = [ + 𝑆𝑆] x C
2
297
=[ 2
+ 425] x 15
= RM 8602.5

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𝑆
TOC = [𝑄] x O
8500
= [ 297 ] x 78
= RM 2232.32

TIC = TCC + TOC


= 8602.5 + 2232.32
= RM 10 834.82

Please do this assignment:


JUNE 2019 P.B Q.3.a
DEC 2018 P.B Q.3.a
JUNE 2018 P.B Q.4.a
MARCH 2017 P.B Q.4.a
MARCH 2016 P.B Q.2.a
OCT 2016 P.B Q.1.a

PREPARED BY,

MISS NUR HIDAYATI SAIRIN

TO MY BELOVED STUDENT 2020

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