Magna Co uses a component called 'Neel'. The company provides the following details:
Monthly demand for finished goods (units)
100
Cost of placing an order
Tshs 10
Annual carrying cost per unit
Tsh1.50
Normal usage of input Neel per week (units)
40
Maximum usage per week (units)
65
Minimum usage per week (units)
25
Reorder period (weeks)
4 to 6
Calculate the following for Neel:
(a) Reorder quantity
(b) Reorder level
(c) Minimum level
(d) Maximum level
(e) Average inventory
(a) Reorder quantity:
Reorder quantity = (Maximum usage per week * Reorder period) - Normal usage per week
Reorder quantity = (65 * 6) - 40
Reorder quantity = 390 - 40
Reorder quantity = 350 units
(b) Reorder level:
Reorder level = Normal usage per week * Reorder period
Reorder level = 40 * 6
Reorder level = 240 units
(c) Minimum level:
Minimum level = Minimum usage per week * Reorder period
Minimum level = 25 * 6
Minimum level = 150 units
(d) Maximum level:
Maximum level = (Reorder level + Reorder quantity) - (Normal usage per week * Reorder period)
Maximum level = (240 + 350) - (40 * 6)
Maximum level = 590 - 240
Maximum level = 350 units
(e) Average inventory:
Average inventory = Reorder quantity / 2
Average inventory = 350 / 2
Average inventory = 175 units