9 Corrected Exercises on Inventory Management

Welcome to this article with the aim of helping you with corrected exercises on Inventory Management and exercises on stock cards from the Operational Management subject of the BTS MCO.

If you would like to first review the course on the same theme, I invite you to read my article Inventory Management: The 7 Key Points to Master and also the article Supply Management: The 3 essential principles.

The 9 corrected exercises on stock management cover the 20/80 method, the calculation of alert stock, and the minimum stock.

You will also find corrected management exercises on average stock or rotation times.

Here is the complete list of the 9 corrected inventory and supply management exercises:

1/ 20/80 method: Bosser case

States

The Casbosser business unit wants to improve the management of its spare parts stocks.

To do this, she gives you a file in appendix 1. Casbosser wishes to apply the 20/80 method.

Work to do

By completing the table in Appendix 1:

1. Find spare parts from the first category which represent 20% of spare parts in quantity and 80% of parts in value.
2. Find spare parts from the second category which represent 80% of spare parts in quantity and 20% of parts in value.
3. Conclude.

Appendix 1: Table 1

Appendix 1: Table 2

Appendix 1: Table 2 continued

Proposed correction

(1): To find the turnover, you must do the following operation: Quantity × Unit PV and this for each line.

For the product referenced ZL553, we have: 217 × 870 = 188.

(2): (217 ÷ 2) × 000 = 100

(3): addition of the percentages as you go, i.e. 10,85 + 0 then 10,85 + 7,5 and so on.

(4): (Reference turnover ÷ Total turnover) × 100 or (188 ÷ 790) × 438 which gives 304%

(5): same as (3) adding the percentages as you go along

2/ Alert stock and minimum stock: Case Cahuète

States

You work in the Cascahuète business unit specializing in the production and distribution of peanuts and other salty appetizers.

You are responsible for monitoring the pistachio stock.

The manager, Mrs. Lachipse, sends you the following information concerning the boxes of pistachios:

• Pistachios supply time: 8 days;
• Safety stock of pistachios: 16 boxes;
• Initial stock of pistachio boxes: 26 boxes;
• Number of boxes of pistachios sold per month: 60 boxes

Work to do

1. How many days of sales does the initial stock represent?
2. Determine the minimum stock between each delivery.
3. Determine the alert stock.
4. Determine the delivery date during January.

Proposed correction

• How many days of sales does the initial stock represent?

Calculation of daily rates:

60 boxes ÷ 30 days or 2 boxes per day.

26 boxes ÷ 2 boxes per day or 13 days.

The initial stock represents 13 days of sales.

• Determine the minimum stock between each delivery.

The supply time and the number of boxes sold per day must be taken into account.

That is: 8 days × 2 boxes, i.e. 16 boxes of pistachios.

So 16 boxes of pistachios are needed to meet the 8-day supply deadline.

• Determine the alert stock.

Reminder: it is the quantity that determines the triggering of the order.

Formula: safety stock + consumption

Alert stock: 16 boxes + (2 boxes × 8 days) or 32 boxes

• Determine the delivery date during January.

First, we must determine the number of days corresponding to the safety stock. Thus we have:

16 boxes ÷ 2 boxes per day or 8 days

The initial stock represents: 26 boxes ÷ 2 boxes per day or 13 days of sales.

We can now deduce the delivery date:

That is 13 days – 8 days = 5 days.

The date is therefore January 5th N.

3/ Average stock and turnover time: Cao case

States

The Cascao business unit sells chocolate bars.

Monthly purchases amount to €12.

The initial stock is €30.

The final stock is €10.

The manager, Mr. Choco, tells you that the purchases are regular.

Work to do

1. Calculate the average stock in value
2. Determine the turnaround time
3. Calculate the turnover rate.

Proposed correction

• Calculate the average stock in value

We apply the following formula: (initial stock + final stock) ÷ 2

(30 + 000) ÷ 10 = €000

The average stock value of the Cascao business unit is €20.

• Determine the turnaround time

First, it is necessary to calculate the sales amount using the following formula:

Sales amounts = opening stock + purchases – closing stock

So: €30 + (€000 × 12) – €000 = €12

Then we apply the following formula for the turnover period: Period = (average stock ÷ sales) x 360 days

Which gives us:

(20 ÷ 000) × 164 days = 000 days rounded to 360 days.

Thus the stock of the commercial unit is renewed approximately every 43 days.

• Calculate the turnover rate.

To calculate the turnover rate we must apply the following formula:

Rate = (sales ÷ average inventory)

So we have: (164 ÷ 000) = 20

The stock is therefore renewed approximately 8 times a year.

4/ Number of orders and Wilson model: Chalot case

States

The Caschalot business unit sells spare parts for model boats and sailboats.

The number of parts sold is 2. The purchase of a spare part is estimated at €000.

The ownership rate is 10% and the cost of transfer is €225.

The manager, Mr. Lemarin, tells you that the number of pieces purchased is identical to the number of pieces sold.

Appendix 1: Determination of total cost.

Work to do

1. Determine the number of orders to optimize the total cost using Appendix 1.
2. Calculate the number of orders according to Wilson's model.

Proposed correction

• Determine the number of orders to optimize the total cost using Appendix 1.

Caption:

(1): Hypotheses

(2): number of orders x cost of placing orders

(3): annual consumption ÷ number of orders

(4): economic lot ÷ 2

(5): (average stock × purchase price) × possession rate

(6): cost of transfer + cost of ownership

From the table, we can say that the minimum total cost is €2 or 600,03 orders of 6 (334) pieces.

• Calculate the number of orders according to Wilson's model.

N = ?[((2 × 000) × 75%) ÷ (10 × 2)]

N = 5,47 rounded to 6 orders

5/ Stock sheet with CMUP: Chemire case

States

The Caschemire business unit specializes in the manufacture and distribution of high-end cashmere clothing.

The regional purchasing director will send you a document which you will find in appendix 1.

Appendix 1: Green sweater stock movements

Work to do

• Value the stock of green cashmere sweater as of April 30, N using the weighted average unit cost method after each issue.

Proposed correction

6/ PEPS Method stock sheet: Chot case

States

The Cachot business unit specializes in the manufacture and distribution of black and white striped clothing for penitentiary establishments.

The regional purchasing director will send you a document which you will find in appendix 1.

Appendix 1: Movements of striped outfit stock

Work to do

1. Value the stock of striped outfits as of April 30, N using the first-in, first-out (FIFO) method.

Proposed correction

The stock of striped outfits is estimated at 90 units at a unit price of €59 for a total amount of €5.

7/ Average storage duration

States

The following elements are given:

Industry standard: 115 days

Average stock: €250

Cost of goods sold: €800

Work to do

1. Calculate the average storage time.

Proposed correction

To calculate the average storage time, we will apply the following formula:

[Average storage duration = (Average inventory ÷ Cost of goods sold) × 360 days]

Average storage duration = [(250 ÷ 000) × 800]

So: 112,5 days rounded to 113 days.

Interpretation & translation services :

Goods are stored for an average of 113 days before being sold.

By industry standards, the company is average and the business unit is expected to manage its inventory well.

8/ Average storage duration (Example 1)

States

The following elements are given:

Initial stock: €270

Final stock: €280

Cost of goods sold: €800

Work to do

1. Determine the average storage duration.

Proposed correction

To calculate the average storage period, we must first determine the average stock, by applying the following formula:

[Average stock = (Initial stock + ending stock) ÷ 2]

Then we can carry out the requested work by applying the following formula:

[Average storage duration = (Average inventory ÷ Cost of goods sold) × 360 days]

So for the average stock we have:

Average stock = (270 + 000) ÷ 280 or €000

Then for the calculation of the average storage time, we have:

Average storage duration = [(275 ÷ 000) x 800]

So: 123,75 days rounded to 124 days.

Interpretation & translation services :

Goods are stored for an average of 124 days before being sold.

9/ Average storage duration (Example 2)

States

The following elements are given:

Initial stock: €270

Final stock: €280

Purchases of goods: €600

Change in stocks: €200

Work to do

1. Determine the average storage duration.

Proposed correction

To calculate the average storage period, we must first determine the average stock, by applying the following formula:

[Average stock = (Initial stock + ending stock) ÷ 2]

Then calculate the cost of goods sold, using the following formula:

[Cost of goods sold = (Purchases of goods + variation of inventories]

Then finally, we can carry out the requested work by applying the following formula:

[Average storage life = (Average inventory ÷ Cost of goods sold) x 360 days]

Calculation of average stock :

Average stock = (270 + 000) ÷ 280 or €000

Calculation of the cost of goods sold : 600 + 000 or €200

Average storage duration:

(275 ÷ 000) × 800 or approximately 000 days.