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Optimum safety stock level

I do not understand, the difference between stock out cost and expected stock out cost. How "expected stock Out" comes by multiplying 'probability and stock out cost'..?


CA Suryaa

CA Suryaa

CA Inter

0

14-Nov-19 22:50

184

Answers (6)

Can you share the question?


Suraj Lakhotia

Suraj Lakhotia

Admin

18-Nov-19 19:55

What you're referring to is maybe tge concept of stock out risk


Tirath Shah

Tirath Shah

CA Inter

1K+

29-Nov-19 22:46

Stock out cost multiplying with probability of stock out it becomes expected stock out cost


Dhrumil Dhobi

Dhrumil Dhobi

CA Inter

90

02-Dec-19 15:01

For eg:- if you are maintaining 50 units of stock level... Some customers came for 100 units and it's probability is only 2%. That means 2% customers may ask for 100 units . If suppose stock out cost is 150 per unit . Then stock out cost is 50 Ã? 150 = 7500 But expectation to happen such a situation is only 2% . Then expected stock out cost is 7500 Ã? 2% =750. (So remember about provisions....We are providing expected losses as per prudence )


george joseph

george joseph

CA Final

5K+

16-Feb-20 04:21

Expected means, probability of happening. And that type of question is quite important in material topic which we solve by ad hoc basis


Star Ca

Star Ca

CA Inter

3K+

24-Feb-20 16:16

So, we check expected stock out cost =stock out costÃ?probability of happening such stock out (i. e,) probability which you find by using ad hoc basis. #in majority of this type of questions they try to ask optimum stock level Which is equal to, minimum of summation of(expected stock out cost +amount required to carry that safety stock,,(which is commonly called as holding /carrying/storage cost)


Star Ca

Star Ca

CA Inter

3K+

24-Feb-20 16:22

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