Page 60 - DBP5043
P. 60
INVENTORY
DETERMINATION OF ANNUAL STOCK PRICES (TIC - TOTAL
INVENTORY COST)
TIC = TCC + TOC
TIC DETERMINATION WITH SAFETY STOCK:
Safety Stock:
- Stocks that exist to avoid the problem of loss of sales when the
customer requests can not be met.
- It is also kept to meet any requirements in the event of delay in
receiving order from the supplier.
- In other words, the safety stock is required when there is
uncertainty between the point of order and delivery time.
- If there is safety stock. It will affect the TCC and TIC:
A = Q / 2 + Safety Stocks
EXAMPLE:
Abu Lahab & Co. sells container to its customers. Company is
expected to sell 260,000 units of containers next year. The cost
per unit is RM6.20. Cost savings are estimated at 20% of the
value of the container. Ordering cost is RM100 for each order.
Calculate TIC for the company if the safety stock required is
1,000 units.
