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Solving questions on [...]]]> What are stock Levels?
Every business has to maintain stocks of material (goods) which are used during the production process. Following stock levels are self-explained. Like reorder level suggests that at what level we should re order the stock. Similarly maximum or minim stock levels suggest the maximum or minimum stocks to be maintained.

Solving questions on this topic is quite easy if you know the formulas. You will have to remember all these formulas.
Helpful Tip
I am giving you a good tip which will ease the process of remembering these formulas. If you have not noticed, just note it that Requirement and Lead Time are same, i.e. if requirement is average, lead time is also average, if requirement is minimum lead time is also minimum in a formula.

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1) Ordering Cost : All cost which are incurred during the ordering of stock, like phone calls, transportation cost etc

2) Holding Cost : Storage costs, like rent of the building etc.

Now if we purchase all the required material in a single order, although we can [...]]]> What is Economic Order Quantity?
There are two costs attached to stock:

1) Ordering Cost : All cost which are incurred during the ordering of stock, like phone calls, transportation cost etc

2) Holding Cost : Storage costs, like rent of the building etc.

Now if we purchase all the required material in a single order, although we can save Ordering Cost, but Holding Cost would be high, and if we purchase our material in several shipments, holding cost would be lowered, but Ordering Cost would be high.
So, Economic Order Quantity is the balance between these two costs. Economic Order Quantity is cheapest taken as a whole. At EOQ, both ordering cost and holding cost are equal.

The Formula of EOQ are given, and while solving the questions you will be using them.

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There is a fundamental difference between the two. A defective good is a good in which there is a manufacturing fault or defect, but this fault can be removed by applying additional cost called rectification cost.

Whereas in case of Spoiled goods, the goods have been spoiled [...]]]> What is the Difference in Defective Goods and Spoiled Goods?

There is a fundamental difference between the two. A defective good is a good in which there is a manufacturing fault or defect, but this fault can be removed by applying additional cost called rectification cost.

Whereas in case of Spoiled goods, the goods have been spoiled or destroyed, and can not be repaired. So it will be sold as a scrape

Below is given the treatment of both Defective Good (Rectification Cost) and Spoiled Goods (Cost Already Incurred).

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