Question

Safety stock is kept as a buffer between supply and demand. This assignment requires you to identify an item of inventory which is kept by your business or alternatively research one.

Which stocktaking method is employed in your company – or one you have researched? Do you think a different method could work? Explain your answer

Answer 1

Stocktaking or inventory checking or wall to wall is the physical verification of the quantities and conditions of items that are held in an inventory or warehouse of the organisation .The stock taking is usually done to provide an audit of existing stock.

The stocktaking method which is employed by the organisation or the one that was researched for is.

(1) Continuous or Perpetual stock count:-

It specifically means that stock taking is conducted on a regular basis . Since entities can use this method of stock taking to ensure that the entity always maintain the right level of stocks or inventory to meet production requirements of customer demand.

This stock taking method impacts the overall profitability of an entity.

For example:-

A stocktaking team may be working continuously so that all the items of stock are checked four times a year , when adjustments are made to the accounting records to adjust them to the physical stock. Continuous stocktaking method is useful in determining the availablity of each item of stock and establishing when stock level reach order level.

Different method that could work here is.

(1) Annual Stock taking Method:-

This stock taking method take in the counting of all the inventory on hand .Most companies are engaging in an Annual audit at the end of the financial year. This method is opted when continuous or Perpetual stock taking method is not undertaken by the entity.

Note :- Safety stock is a term used to describe thw level of extra stock that is maintained to reduce risk of stockouts.Adequate safety stock level permits business operations to proceed according to the plans of the entity.

Safety stock formula:-

( Maximum Daily usage × maximum lead time in days) - ( average daily usage × average lead time in days)

*Lead time means the amount of time that passes from the start of a process until it is completed.