MATERIAL COST
Material Cost
what is cost How much to When to Stock valuation
of material purchased purchase & control
How much to purchase
A → Annual Purchase Requirement
Q → No. of units to be purchased at a time
C.P.U → Cost per unit
O → ordering cost per order
C → Carrying cost per unit per anum
T.O → Total Orering cost per anum
→ A
xO
Q
T.C → Total carrying cost per annum
→ Q
xC
2
PC = A x C.P.U
TAC = TO + TC +PC
When to purchase
→ Stock levels
Re-order Level = (Maximum Consumption x Maximum lead time)+ safety stock
Max. Stock Level = Rol - (minmum cons x minmum lead time) + ROQ
Min. Stock Level = Rol - (Avg. cons x Avg Lead time)
Avg stock level = Max stock + Min stock
2
Alternative
Min stock level = ROL - (Avg cons x Avg load fix)
ROL = Min stock level + (Avg cons x Avg load hr)
1
Material Cost
what is cost How much to When to Stock valuation
of material purchased purchase & control
How much to purchase
A → Annual Purchase Requirement
Q → No. of units to be purchased at a time
C.P.U → Cost per unit
O → ordering cost per order
C → Carrying cost per unit per anum
T.O → Total Orering cost per anum
→ A
xO
Q
T.C → Total carrying cost per annum
→ Q
xC
2
PC = A x C.P.U
TAC = TO + TC +PC
When to purchase
→ Stock levels
Re-order Level = (Maximum Consumption x Maximum lead time)+ safety stock
Max. Stock Level = Rol - (minmum cons x minmum lead time) + ROQ
Min. Stock Level = Rol - (Avg. cons x Avg Lead time)
Avg stock level = Max stock + Min stock
2
Alternative
Min stock level = ROL - (Avg cons x Avg load fix)
ROL = Min stock level + (Avg cons x Avg load hr)
1
