QUESTION $1$

$($a$)$ Give four $(4)$ reasons why stock is held.

$($b$)$ A company needs to hold a stock of item $x$ for sale to customers. Although the

item is of relatively small value per unit. The customers' quality control

requirements and the need to obtain competitive supply tenders at frequent

intervals result in high procurement costs.

Basic data about item $x$ are as follows:

Annual sales demands $($d$)$ over $52$ weeks

Cost of placing and processing a purchase order

Cost of holding one unit for one year $($ch$)$

$=5000$ units

$=K50$

$=K4$

Normal delay between placing purchase order and receiving goods $=$

$3$ weeks

Required:

i$.$ Compute the Economic Order quantity for item X$,$ using the formula

$($EOQ$)$:

$(6$ marks$)$

ii$.$ Compute the frequency at which purchase orders would be placed, using

the formula above.

$(4$ marks$)$

iii. Give Three advantages an of Re order level system

$(6$ Marks$)$