Equation problems related to Inventory Quantity Standards
From the following
information, you are required to determine:
(a) Ordering
Point or Re-order Level
(b) Minimum
Limit or Minimum Stock Level
(c) Maximum
Limit or Maximum Stock Level
(d) Danger Level
Maximum daily
requirements 800 units
Time required receiving
emergency supplies 4 days
Average daily
requirement 700
units
Minimum daily
requirement 600
units
Time required for fresh supply one month (30 days)
Economic Order Quantity 29000 units
Solution:
(a) Ordering Point = Maximum daily requirement × lead
time
Ordering Point or Re-order Level = 800 × 30 = 24000
units
(b) Minimum
Limit = Ordering Point – Average Consumption
Minimum Limit or Level = 2400 – (700 × 30)
Minimum Limit or Level = 24000 – 21000 = 3000 units
(c) Maximum
Limit = Ordering Point – Minimum consumption while the replacement order is
outstanding + E.O.Q
Maximum Limit or
Maximum Stock Level =
24000 – (600 ×
30) + 29000
Maximum Limit or
Maximum Stock Level =
24000- 18000 +
29000 = 25000 units
(d) Danger Level
= Average daily consumption × time required to receive emergency supply
Danger Level =
700 × 4 = 2800 units
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