cost and management accounting

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asked Jun 12, 2016 in Subsidiary Books by toemanil (14 points) 143 views

1 Answer

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Optimal Order Quantity =  √2xAnnual ConsumptionxOrder cost per unit)/Annual carrying cost per unit

Optimal Order Quantity = √(2x6000x60)/2 = 600 units

Appropriate weeks to order 

Since lead time is two weeks and consumption per week is 120 units.  It means that during the lead period 240 units will be consumed.  It means we shall order whenever we reach the level of 240 units.  If at the beginning of the year there are 600 units, then after three weeks when there are only 240 units in stock one should order.  So First order will be at the beginning of the year, next at the end of 3rd week.  Now keep adding 5 weeks to the last order date and you will get next reorder date.

Re-order Level= (Average lead time x Average consumption)

                        = (2 x 120) = 240

Minimum Level = Re-order level -(Normal consumption x Normal Re-order Period)

                          = 240 – (120 x 2) = 0

answered Jun 14, 2016 by jbsclasses (3,971 points)