Stock Turnover Period Example

Stock Turnover Period Example

Stock turnover period is calculated to determine that how company sales department is performing. in other words shows that how many time stock shall take to be sold. This concept can be explained with an example;

Stock Turnover Period =     Average Inventory     x 365

                                             Cost of Sales

Example

Stock or average stock of the company= 18,000

Cost of Sales of the company = 80,000

Calculate the number of days in which stock shall be sold?

Solution

Stock Turnover Period =     Inventory or Average Inventory     x 365

                                                   Cost of Sales

= (18,000/80,000) x 365

= 82.125 Days

Company shall take 82 days for selling its stock.

Stock Cycle Example

Stock Cycle Example

Stock cycle is calculated to show the order placement frequency i.e. interval of order placing. Stock cycle formula has been given below and the concept has been explained with a simple example.

Stock Cycle =     Number of Weeks    

                          Number of Order

Example

Number of order placed for the year= 25

What would be Stock Cycle?

Solution

Number of weeks in stock cycle formula is constant i.e 52 weeks, where number of order is variable.

Stock Cycle =     Number of Weeks    

                          Number of Order

=52/25

=2.08 Weeks

stock order to be placed every second week.

Re order Level Example

Re order Level Example

Re order level is a level of placing new order. This concept can be explained with simple example. Re order level help is effective supervision tool of inventory level.

Re order Level = Maximum usage x Maximum Lead Time

Example

Number of Unit required per week for production= 10,000

Maximum time required to reach the stock at god won= 7 weeks

What would be Re order level?

Solution

Re order Level = Maximum usage x Maximum Lead Time

= 10000 x 7

=70,000 units

When stock reaches at level of 70,000, new order is to be placed.

Minimum Stock Level Example

Minimum Stock Level Example

Minimum stock level concept has been explained with an example below;

Minimum Stock Level = Reorder Level - (Average usage x average Lead Time)

Example

Re Oder level established by the company = 35,000

Company Average material usage per week= 8,000

Company Average lead time for delivery = 4 weeks

Solution

Minimum Stock Level = Reorder Level (Average usage x average Lead Time)

= 35,000-(8,000 x 4)

=35,000-32,000

=4,000 (minimum stock level)

Technically saying minimum order level is level at which new supply should reach. This level is critical and management must take necessary step to ensure the supply.

Total Ordering Cost Example

Total Ordering Cost Example

Total ordering cost for the year is calculated by multiplying the number of order placed per year with cost of placing one order.

Total Ordering Cost =Number of Orders x Cost per order

Example

Number of order Placed during the Year = 20

Cost incurred per order = 1000

Solution

Number of Orders x Cost per order

Total ordering cot = 20 x 1000

= 20000 (Total ordering Cost)

Economic Order Quantity Example

Economic Order Quantity Example

Economic order quantity concept can be explained with following example

EOQ = √2CoD/C_h

Where

D= Demand

C_{0 =} Cost of order

C_h= Cost of Holding

Example

Material Annual Demand is = 150,000

Per order Cost = 100

Holding Cost per unit= 1.2

Calculate unit to be ordered by the entity?

Solution

EOQ = √2CoD/C_h

= √2(100)(150,000)/1.2

= 5000 units