Ordering stock

The store manager will decide that an order needs to be placed and the number or the units to order. The amount to be ordered will be determined by the future plans for production and sales.

It is calculated as follow

Ordering stock = required for sales + closing stock – opening stock

Question:

Hussy Ltd makes a product which requires 2 kg of material X. Hussy Ltd always keep closing inventory of 200 kg of material X each month. As the production of last three months were 500 hundred units. Hussy Ltd is planning to increase its sale to 600 hundred units from the present month.

Required:

How many kg of material X should be ordered?

Solution:

Closing stock                200 kg

Opening stock               200 kg

Requirement for sale     600/2= 300 kg

Now put in formula:

Ordering stock = 300+200-200

Ordering stock = 300 kg of material required.