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Maximum and Minimum Inventory Control

The document discusses maximum and minimum inventory levels. It notes that maximum inventory is determined by factors like consumption rates, lead times to obtain supplies, financial considerations, storage space, price fluctuations, and risks. Minimum inventory is set based on consumption rates, lead times, and costs of stock outs. Formulas for calculating maximum and minimum inventory levels are provided. The document also discusses stocktaking procedures, issues with discrepancies, and control procedures to address issues like ordering goods at inflated prices and fictitious purchases.

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Taha Madni
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25 views7 pages

Maximum and Minimum Inventory Control

The document discusses maximum and minimum inventory levels. It notes that maximum inventory is determined by factors like consumption rates, lead times to obtain supplies, financial considerations, storage space, price fluctuations, and risks. Minimum inventory is set based on consumption rates, lead times, and costs of stock outs. Formulas for calculating maximum and minimum inventory levels are provided. The document also discusses stocktaking procedures, issues with discrepancies, and control procedures to address issues like ordering goods at inflated prices and fictitious purchases.

Uploaded by

Taha Madni
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Name Ali Raza

Class [Link] 2nd


PRESENTED TO
SIR SAJJAD SB
Maximum and minimum inventory
The maximum inventory level is fixed by taking into account
•Rate of consumption of the material
•Time needed to obtain new supplies
•Financial considerations due to high inventories tying up capital
•Storage space with regard to the provisions of space and
maintenance costs
•Extent to which price fluctuates
•Risk of changing specifications
•Possibility of loss by evaporation, deterioration, etc.
●Seasonal consideration as to both price and availability
●Economic order quantities
The minimum inventory level
●Rate of consumption
●Time needed to obtain delivery of supplies
●The costs and other consequences of stock outs

Formula of maximum and minimum inventory


Level
Maximum inventory
Reorder level + Reorder quantity – (minimum usage * minimum lead time)

Minimum inventory
Reorder level – ( average usage * average lead time)
Note = if at any time inventories fall below thee minimum level, this is a
warning that usage or lead time or above average.
If inventories rise above the maximum level then usage or lead time have
actually been lower than the expected minimum.
Control procedure to minimize and discrepancies losses

Stocktaking
The process of stocktaking involves checking the physical quantity of inventory held
on a certain date and then checking this balance against the balances on the store
ledger cards or bin cards . Stocktaking can be carried out on a periodic basis or a
continuous basis.

Periodic stocktaking involves checking the balance of every item of


inventory on the same date, usually at the end of accounting period.

Continuous stocktaking involves counting and valuing selected items


of inventory on a rotating basis specialist count and check certain item of inventory
on each day .
●Any differences which arise between book inventory and physical inventory must
be investigated
●In theory any differences as recorded in the store ledger or the bin card must
have arisen through faulting recording
●Once the discrepancy has been identified the store ledger card is adjusted in
order that it reflects the true physical inventory count
●Any item which are identified as being slow moving or obsolete should be
brought to the attention of management as soon as possible
●Management will then decide whether these item should be dispose of and
return of to the income statement
●Slow moving items are those inventory items which take a long time to be used
up
●Obsolete items are those items of inventory which have become out of date and
are no longer required
Examples of other issues and controls

ISSUES CONTROL PROCEDURE

Ordering goods inflated prices •Use of standard costs for purchases


•Quotation for special items
Fictitious purchases •Separation of ordering and purchasing
•Physical control over material receipts
is usage and inventory
Thanks,,,,,,,,,,,,,,,,,,,,,,,
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