Question

A company uses three raw materials A, B and C for a particular product for which the following data apply: Delivery (in weeks) Raw material Usage per unit of product kg Re-order quantity kg Price per kg Min Average Max Re-order level (kg) Min level (kg) A 10 10,000 0.10 1 2 3 8,000 B 4 5,000 0.30 3 4 5 4,750 C 6 10,000 0.15 2 3 4 2,000 Weekly production varies from 175 to 225 units, averaging 200 units of the said product. What would be the following quantities? i. Minimum stock of A? ii. Maximum stock of B? iii. Re-order level of C? iv. Average stock level of A?

Answer 1

Answer:

i. Minimum stock of A = 7600 Units

ii. Maximum stock of B = 9225 Units

iii. Re-order level of C. = 675 Units

iv. Average stock level of A = 12712.5 Units

Answer 2

Answer:

• The minimum stock of A = 4000 kgs
• The maximum stock of B = 7400 kgs
• Re-order level of C. = 5400 or 5600 kgs
• The average stock level of A = 9000 kgs

Explanation:

Given:

The data in the table

To Find:

(i) Minimum Stock of P

(ii) Maximum Stock of Q

(iii) Re-order level of R

(iv) Average Stock level of P

Solution:

(i) Minimum stock level of P

The minimum stock level of P = Reorder Level - (Normal Usage x Avg. Delivery Time)

Here, we are given

Reorder Level = 8000 kgs

Normal Usage= 200 units every 10 kg

Avg. Delivery Time= 2 weeks

Putting these values in the formula,

The minimum stock level of P = Reorder Level - (Normal Usage x Avg. Delivery Time)

Minimum stock level of P = 8,000 kgs - {(200 units x 10 kg) x 2 weeks}

Minimum stock level of P = 8,000 - {2000 x 2}

Minimum stock level of P =  8,000 - 4000

Minimum stock level of P = 4000 kgs

(ii) Maximum Stock of Q

Maximum stock of Q = Reorder Level + Reorder Quantity - Minimum consumption to obtain delivery

Here, we are given

Reorder Level = 4500 kgs

Reorder Quantity = 5000 kgs

Normal Usage= 200 units every 10 kg

Minimum consumption to obtain delivery = 175 units every 4 kgs for 3 weeks

Putting these values in the formula,

Maximum stock of Q = Reorder Level + Reorder Quantity - Minimum consumption to obtain delivery

Maximum stock of Q = 4,500 kgs + 5,000 kgs - (175 units x 4 kgs x 3 weeks)

Maximum stock of Q = 9,500 kgs - (175 units x 4 kgs x 3 weeks)

Maximum stock of Q = 7400 kgs

(iii) Reorder Level of R

Reorder Level of R =  Maximum reorder period x Maximum usage

Here, we are given

Maximum reorder period =  4 weeks

Maximum usage  = 225 units for 6 kgs

Reorder Level of R = 4 weeks x (225 units x 6 kgs)

Reorder Level of R = 5400 kgs.

[OR]

Reorder Level of R= Min. stock + (Avg. rate of consumption x Avg. Delivery Period)

Here, we are given

Minimum stock= 2,000 kgs

Avg. rate of consumption = 200 units for 6 kgs

Avg. Delivery Period = 3 weeks

Reorder Level of R= Min. stock + (Avg. rate of consumption x Avg. Delivery Period)

Reorder Level of R = 2,000 kgs + {(200 x 6) x 3 weeks)

Reorder Level of R = 5,600 kgs.

(iv) Average stock level of P

The average stock level of P = Minimum level + 1/2 x Reorder Quantity

Here, we are given

Minimum level = 4,000 kgs

Reorder Quantity =  10,000

The average stock level of P = Minimum level + 1/2 x Reorder Quantity

Average stock level of P = 4,000 kgs + 1/2 x 10,000

Average stock level of P = 9,000 kgs

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