Practice question
Ace Ltd. manufactures a product and the following particulars are collected for the year ended March, 2013:
• Monthly demand (units) 25000
• Cost of placing an order (') 10000
• Annual carrying cost (per unit) 1500
• Normal usage (units per week) 5000
• Minimum usage (units per week) 2500
• Maximum usage (units per week) 7500
• Re-order period (weeks) 4-6
Practice question cont...
• You are required to calculate:
• (i) Re-order quantity
• (ii) Re-order level
(iii) Minimum level
(iv) Maximum level
• (v) Average stock level
(i) Re-order quantity:
Re-order quantity = (Normal usage per week x Re-order period) + Safety stock
Re-order quantity = (5000 units/week x 4-6 weeks) + Safety stock
Re-order quantity = (20000-30000 units) + Safety stock
(ii) Re-order level:
Re-order level = (Minimum usage per week x Re-order period) + Safety stock
Re-order level = (2500 units/week x 4-6 weeks) + Safety stock
Re-order level = (10000-15000 units) + Safety stock
(iii) Minimum level:
Minimum level = Minimum usage per week x Lead time
Minimum level = 2500 units/week x 6 weeks
(iv) Maximum level:
Maximum level = (Maximum usage per week x Re-order period) + Safety stock
Maximum level = (7500 units/week x 4-6 weeks) + Safety stock
(v) Average stock level:
Average stock level = (Re-order quantity/2) + Safety stock