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    Stock Control and Cycle

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    a) Using a spreadsheet where appropriate, draw a stock control system for the purchase of water features by Garden Force over a seven month period. You must assume 150 000 units are used every two months, a maximum stock level of 210 000 units, minimum stock level of 60 000 units. Stock is reordered when it reaches a level of 120 000. The same quantity is used up every 2 months. On the diagram, identify the lead time and reorder quantity. Comment on the usefulness of this method of stock control.

    b) If the cost of placing an order is 170 pounds, the stock costs 30 pounds per unit, the annual holding cost/storage cost is 15% of the stock cost, and annual demand is 60,000 units. What is the economic order quantity? How many orders will be placed each year and what is the stock cycle?

    c) Using simple examples, Show how the business could use other financial tools e.g Accounting Rates of Return (ARR) and Internal Rates of Return (IRR), to evaluate the viability of any proposed new investments.

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    Solution Preview

    Please see the attached file.

    The writeup (theory) for part c is given in a separate word file.

    What are capital budgeting and an investment decision rule?
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