Module 6 - Equations - Working Capital Management Flashcards
Stock turnover
Cost of sales / stock
Stock days
(Stock (what stock) / Cost of Sales) x 365
What is EOQ?
Economic Order Quantity
EOQ equation
Q = square root ((2CoD) / Ch)
D = Demand or usage in units for one year
Co = Cost of making One order
Ch = Holding cost per unit
Q = Reorder quantity (the EOQ)
Number of orders per year
Annual demand / order quantity
Ordering costs per year
Number of orders per year x cost to order
Stock holding costs per year
Average level of stock x holding cost per unit
Holding cost
Average stock level x holding cost per unit
Average stock level is order quantity / 2 if no safety stock
Order cost
No. of order per year x cost per order
Purchase costs
Demand x cost per unit
Re-order level (first one)
Re-order level = Lead Time Demand = lead time (days) x units used per day
Lead time demand
Lead time (days) x units used per day
What is re-order level
Relates to when the company should order stock
What is re-order quantity
How much stock the company should order in
Average stock level (when no safety stock)
Order quantity / 2
