EBK OM
6th Edition
ISBN: 9781305888210
Author: Collier
Publisher: YUZU
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Chapter 11, Problem 1DQ
Summary Introduction
Interpretation:Issues that a small pizza company in inventory management and the system to be used in purchasing the fresh dough and the advantages and the disadvantages of each are to be discussed.
Concept Introduction:Fixed order quantity is an inventory
Period inventory system on the other hand updates the closing inventory balance in the ledger when a physical inventory count is performed.
Expert Solution & Answer
Explanation of Solution
As a small pizza company the period system is preferred in purchasing the fresh dough when compared to the fixed order quantity as the implementation of such a system is easy and also cost effective. Period system consists of physical counting that is applicable for a smaller businesses more than the larger ones.
The advantages and disadvantages of fixed order quantity and the period system,
Fixed Order Quantity
Advantages
Continuous monitoring of inventory control
Less wastage
Maintaining a stable level of stocks
Disadvantages
Orders are placed at irregular times
This system does not consider the changes in the costs.
Period System
Advantages
Easy implementation
Cheaper system
Ideal for small businesses
Disadvantages
Inaccuracies may occur
Labor Intensive
Exercising Control
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