A retail company has been reviewing the adequacy of its stock control systems and has identified three products for investigation. The relevant details for the three products are set out below:
| EOQ | Stock in the warehouse store | Weekly sales Sh”000” | ||||
| Product | “000” units | “000” units | Sh/unit | Minimum | Normal | Maximum |
| A | 25 | 32.5 | 2.25 | 26 | 28 | 30 |
| B | 500 | 422.7 | 0.36 | 130 | 143 | 160 |
| C | 250 | 190 | 0.87 | 60 | 96 | 128 |
The management accountant has provided you with the following additional information:
i) The gross margin of products A, B and C are 42, 46 and 37. The company policy is to express the gross margin as a percentage of sales.
ii) There are six trading days a week. A trading year has 52 weeks.
iii) All orders are delivered by suppliers into the retailer’s central warehouse. The lead-time
is one week from the placement of order. A further week is required by the retailer in order to transfer stock from the central warehouse to stores. Both of these lead times can be relied on.
iv) The information produced above represents the expected occurrence of demand and costs.
v) An order for item C for 250,000 units was placed 2 days ago.
REQUIRED:
a) Calculate for each product:
i) The minimum and maximum weekly sales units (4 marks)
ii) The stock-re-order level (3 marks)
iii) The maximum stock level (4 marks)
