Page 206 - 5.2 i. Manac Finance ITC Summarised Notes

MANAGEMENT OF WORKING CAPITAL

The management of inventory

Objective: Maintain sufficient inventory levels to avoid running
out of inventory but to keep these levels as low as possible to

reduce holding costs.

• Used to decide the optimum order size for inventory which will

minimise the cost of ordering stocks and stockholding costs.

• Holding/carrying costs = holding cost per unit per annum x

average units on hand

o Average units on hand = (order quantity / 2) + safety stock

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