Problem 5:
The Rustam Company has developed the following data to assist in controlling one of its inventory items:
Economic Order Quantity: 1000 Kg
Average daily use: 100 Kg
Minimum daily use: 80 Kg
Maximum daily use: 120 Kg
Working days per year 250 days
Safety stock 400 Kg
Cost of carrying Inventory Rs. 1.00 per Kg. per year
Lead Time 7 working days
Required:
(i) Order Point
(ii) Average Inventory
(iii) Normal Maximum Inventory
(iv) Absolute Maximum Inventory
(v) Cost of Placing one order.
Solution:
(i) Order Point = Normal daily use x lead time + safety stock
Order Point = (100 x 7) + 400 = 1100 Kg.
Inventory Turn Over:
Inventory turnover is a ratio of the value of materials used or finished goods sold during a certain period to the average inventory of materials or finished goods held during the period. In the form of formula, it may be written as following:
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