Finance Numericals

Safety Stock: An extra stock kept by the company to minimize the risk of stock-out. It acts as a cover against supplier lead time, production lead time, customer demand etc of uncertain activities which affects the stock level. It helps to continue the production activities. It is also known as buffer stock. Formula: Safety stock = (Maximum daily usage*Maximum lead time) – (Average daily usage*Average lead time) OR Safety Stock = Z*standard deviation lead time* average daily demand Where, Z = service level Stock-out: It is a situation when stocks are not available for sale or at the time of requirement. Lead Time: It is a time gap between issuing the purchase order and receiving the ordered product. Reason to maintain Safety Stock: ·          It is good to maintain safety stock when the lead time (time between issuing the purchase order and receiving the ordered product) will increase. ·          When the demand of the products fluctuate very fre

There are some techniques which help the company to control the inventory management by reducing the losses and time of delivering the goods to customer of a company. Some of the techniques are: 1)       Just In Time: In this technique the stocks are ordered when it is demanded by customer or required to fulfil the market demand. It reduces the carrying cost. 2)       ABC Analysis: In this technique the stocks are classified into A items, B items and C items. a)       A items: The stocks which are high in value but low in quantity and needed constant supervision is come under this category. b)       B items: The stocks which are moderate in value it means not high or not low and also moderate in quantity and needed moderate supervision is come under this category. c)       C items: The stocks which are low in value but high in quantity and needed very less supervision is come under this category. 3)       Bulk shipment: In this technique the goods are ord

There are three methods with the help of which company can evaluate its inventory and the methods are: ·          FIFO method ·          LIFO method ·          Weighted average method These methods are divided into two parts that is: ·          Periodic method : In this method the inventory is updated regular interval of time. ·          Perpetual method: In this method the inventory is updated continuously. Under this method two       journal entries were formed when sales made: Accounts Receivable a/c Dr.                           Sales a/c    Inventory a/c Dr.                     Cost of goods sold a/c   FIFO (First In First Out) method : In this method the stock which comes first into warehouse is sold first. The value shown in trading and profit and loss a/c as a cost of goods sold is the value of older stock or the stock which comes first in warehouse. The value of newer stock is mention in balance sheet under the current assets. In inflation the FIFO sh