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 control system where the maximum and minimum inventory levels will be set and fixed and these fixed amounts will be replaced at a time when the inventory level reaches the auto set reorder point.

Period inventory system on the other hand updates the closing inventory balance in the ledger when a physical inventory count is performed.

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