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Unit 2 - Materials-2

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19 views7 pages

Unit 2 - Materials-2

Uploaded by

pkfs8jgfmw
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We take content rights seriously. If you suspect this is your content, claim it here.
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INVENTORY CONTROL

1. Re-order Stock Level


a. Re-Order Level=Minimum limit + Consumption during the time
required for fresh delivery
OR
b. Re-order Level = Maximum consumption x maximum re-order
period

2. Re-order quantity
Re-order quantity is the quantity of materials for which purchase
requisition has to be made by the store departments. The quantity should
be such that the total carrying costs and ordering costs is at the minimum.
For this purpose , we calculate the Economic Order Quantity

3. Economic Ordering Quantity


This quantity is fixed in such a manner as to minimize the cost of ordering and
carrying the stock.
Carrying Cost: It is the cost of holding the materials in the store and includes:
1. Cost of storage space which could have been utilized for some other purpose.
2. Cost of bins and racks
3. Cost of maintaining the materials to avoid deterioration.
4. Amount of interest payable on the amount of money locked up in the
materials.
5. Cost of spoilage in stores and handling.
6. Transportation cost in relation to stock.
7. Cost of obsolescence of materials due to change in the process or product.
8. Insurance cost
9. Clerical cost etc.
Ordering Cost: It is the cost of placing orders for the purchase of materials and
includes:
1. Cost of staff posted in the purchasing department, inspection section and
stores accounts department.
2. Cost of stationary postage and telephone charges
4. Minimum Stock Level – It is the lowest level of material stock which must
be maintained in hand at all times, so that there is no stoppage of
production due to non-availability of inventory

\
5. Maximum Stock Level -It is the highest level of quantity for any material
which can be held in stock at any time. Any quantity beyond this level can
cause extra amount of expenditure due to the engagement of fund, cost of
storage and spoilage etc
6. Average Inventory level: It is also called as normal stock level . It is the
quantity of materials that is normally held in stock over a period of time.

7. Danger level – It is the level at which normal issues of raw materials are
stopped and only emergency issues are made.

8. Buffer stock: It is the stock kept aside for contingency in case of sudden
orders or

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