QUESTION $1$

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

$($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 $=5000$ units

Cost of placing and processing a purchase order $=$ K$50$

Cost of holding one unit for one year $($ch$)=$ K$4$

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