Solved Problems of Inventory Quantity Standards


Problem 1:

Normal usage: 100 units per day
Maximum usage: 130 units per day
Minimum usage: 70 units per day
Economic Order Quantity:5000 units
Re-order Period: 25 to 30 days
From the above information you are required to calculate:
(i) Re-order Level
(ii) Minimum Level
(iii) Maximum Level

Solution:
(i) Re-order Level = Maximum daily usage × Maximum Re-order period
Reorder Level = 130 × 30 = 3900 units
(ii) Minimum Level = Re-order Level – Average usage for average re-order period.
Minimum Level = 3900 – (100 × 27.5)
Minimum Level = 3900 – 2750 = 1150 units
(iii) Maximum Level = Re-order Level – Minimum quantity used in re-order period + Economic Order Quantity
Maximum Level = 3900 – (70 × 25) + 5000
Maximum Level = 3900 – 1750 + 5000 = 7150 units

Problem 2:
Two types of materials A and B are used as follows:
Minimum usage: 20 units per week each
Normal usage: 40 units per week each
Maximum usage: 60 units per week each
Re-order Quantity (EOQ): A 400 units, B 600 units
Reorder Period: A: 3 to 5 weeks, B: 2 to 4 weeks
Calculate for two types of materials:
(a) Ordering Point or Re-order Level
(b) Minimum Level
(c) Maximum Level
(d) Average Stock Level

Solution:
(a) Ordering Point or Re-order Level = Maximum usage × Maximum re-order period
Ordering Point of Material A = 60 × 5 = 300 units
Ordering Point of Material B = 60 × 4 = 240 units
(b) Minimum Level = Ordering Point – (Normal usage × Normal re-order period)
Minimum Level of Material A = 300 – (40 × 4) = 140 units
Minimum Level of Material B = 240 – (40 × 3) = 120 units
(c) Maximum Level = Ordering Point – (Minimum usage × Minimum re-order period) + EOQ
Maximum Level of Material A = 300 – (20 × 3) + 400
Maximum Level of Material A = 300 – 60 + 400 = 640 units
Maximum Level of Material B = 240 – (20 × 2) + 600 = 800 units
(d) Average Stock Level = ½(Minimum Level + Maximum Level)
Average Stock Level of Material A = ½(140 + 640) = 390 units
Average Stock Level of Material B = ½(120 + 800) = 460 units

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