Question

discuss with examples the two methods of inventory control. Which method do you think is better for a retail store with several items of small value?

Answer 1

Answer: Methods of inventory control-

(1): EOQ- Economic order quantity is the number of units that a company should add to inventory with each order so as to minimize the inventory and warehouse cost.

Assumptions- Are as following:

• Demand is constant and known.
• Fixed item cost
• Fixed ordering and holding cost.

Formula-

EOQ =

Where;

D = Demand in units

S = Order cost (per purchase order)

H = Holding cost (per unit per year)

Objective of EOQ- Is to identify the optimal number of product units to order so as to minimize cost of buying

(2): FIFO- First in first out is the method that says, goods that are bought firstly, should be sold firstly. Goods that are there on the shelf, should be sold firstly and quickly. There are many goods that have their expiry dates, for selling the goods before expiry and to minimize the wastage, this method is the best.

FIFO leads to higher profits. It is the best approach of inventory control and easy to understand and apply.

Best method- In my views, FIFO is the best method for retail stores who sell products like cosmetics, food, drinks, skin care, apparels, seasonal products and other perishable product.