Minimum stock level - stock may never fall below a given level.

  • Maximum stock level - the most stock that can be kept in order to retain cost effectiveness.
  • Standard order - the amount of stock that should be ordered on a regular basis.
  • Order level - the point where stock must be ordered.
  • Rate of stock turnover - the number of times per year that the stock must be replaced.
  • The rate of stock turnover can be calculated with this formula:
                              
Activity

Calculate the rate of stock turnover per year.

a) Average stock quantity at cost price of R250 000; cost price of goods sold R625 000.
b) Stock quantity at beginning of year was R140 000; stock at end of year was R95 000; cost price of stock sold was R528 750.