Intermediate: Calculation of re-order and maximum stock levels A retail company has been reviewing the adequacy of its stock control systems and has identified three products for investigation. Relevant details for the three products are set out below:

Outstanding order: Item code 14/243-order for 250 000 units placed 2 trading days ago. There are 6 trading days per week. All orders are delivered by suppliers into the retailer’s central warehouse. The lead time is one week from placement of order. A further week is required by the retailer in order to transfer stock from central warehouse to stores. Both of these lead times can be relied upon. Required:

(a) Calculate for each product: (i) the minimum and maximum weekly sales units (ii) the stock re-order level (iii) the maximum stock control level.

(b) Comment upon the adequacy of the existing stock control of the three products. (5 marks) (Total 14 marks) ACCA Foundation Stage Paper 3 25.9* Intermediate: Quantity discounts A company uses 50000 units of material per annum to service a steady demand for its products. Order costs are £100 per order and holding costs are £0.40 per order.

(a) Determine the optimal order quantity.

(b) The supplier now offers a quantity discount of £0.02 per unit if it buys in batches of 10000 units. Should the company take advantage of the quantity discount?

Transcribed Image Text:

Item code EOQ Stock (warehouse and stores) Weekly sales (000) Gross* margin (000 (000) (/unit mini- nor- maxi- (% of units) units) at cost) mum mal mum sales) 14/363 25 32.5 2.25 26 28 11/175 500 422.7 0.36 130 143 14/243 250 190 0.87 60 96 128 222 30 42 160 46 37 *Gross margin = sales - purchase cost of product.