Case study 01 - Inventory Management You are the accounting officer of Zhaka CC, a small construction firm. The members are concerned about their inventory management, where up until now, ordering of raw materials has been haphazard and largely by guesswork. The members of Zhaka CC are anticipating an upsurge in demand for their services. They realise that they need to manage their inventory effectively if they want to be a successful player in the building industry. They have asked you to look at their anticipated brick consumption and make appropriate recommendations. The followingdata is relevant:– Budgeted consumption maximum 300 000 bricks/month minimum 100 000 bricks/month average 200 000 bricks/month annual 2 400 000 bricks/year Additional information: Lead time for delivery from the brick manufacturer, Kwasi Ltd, is a maximum of two months, a minimum of two weeks, and an average of one month. Price per brick is R2. Holding cost is 10% of stock value. Ordering cost is R1 500 per order. Required: Determine when businesses might maintain high or low inventory levels and also how to determine their ideal inventory levels
Case study 01 - Inventory Management
You are the accounting officer of Zhaka CC, a small construction firm. The members are concerned about their inventory management, where up until now, ordering of raw materials has been haphazard and largely by guesswork. The members of Zhaka CC are anticipating an upsurge in demand for their services. They realise that they need to manage their inventory effectively if they want to be a successful player in the building industry.
They have asked you to look at their anticipated brick consumption and make appropriate recommendations. The followingdata is relevant:– Budgeted consumption
maximum 300 000 bricks/month
minimum 100 000 bricks/month
average 200 000 bricks/month
annual 2 400 000 bricks/year
Additional information:
Lead time for delivery from the brick manufacturer, Kwasi Ltd, is a maximum of two months, a minimum of two weeks, and an average of one month.
Price per brick is R2.
Holding cost is 10% of stock value.
Ordering cost is R1 500 per order.
Required: Determine when businesses might maintain high or low inventory levels and also how to determine their ideal inventory levels
Step by step
Solved in 2 steps
