Question

Compute the various stock levels from the following data:

Maximum consumption in a month — 300 units

Minimum usage in a month — 200 units

Average usage in a month — 225 units

Time-lag for procurement of materials:

Maximum 6 months

Minimum 2 months

Recorder quantity 750 units.​

Answer 1

Answer:

(i) Maximum Level of Stock = (Reorder Level + Reorder Quantity) – (Minimum rate of consumption x Minimum reorder period)

Maximum Level may be alternatively fixed as Safety Stock + Reorder Quantity or EOQ.

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(ii) Minimum level of stock = Reorder level – (Average rate of consumption x Average reorder period)

(iii) Safety Stock = (Annual Demand/365) x (Maximum Reorder Period – Average Reorder Period)

(iv) Reorder level or Ordering level = Maximum rate of consumption × Maximum reorder period. Alternatively, it will be = safety stock + lead time consumption

[lead time consumption will be = (Annual consumption -s- 360) × lead time]

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