CA INTERMEDIATE: COSTING & FM · MATERIAL COST

Stock levels: re-order, minimum and maximum

ROL = Max usage × Max lead time. Min level = ROL − (Avg usage × Avg lead time). Max level = ROL + ROQ − (Min usage × Min lead time).

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Worked examples

Example 1 · level 1

Patel Packaging — Usage per week: minimum 400, normal 700, maximum 1000 units. Lead time: minimum 4, normal 5, maximum 6 weeks. Re-order quantity 5,000 units. Find the re-order level.

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ROL = 1000 × 6 = 6,000.

Answer: 6,000 units

Example 2 · level 2

Iyer Foods Ltd — Usage per week: minimum 200, normal 500, maximum 800 units. Lead time: minimum 4, normal 5, maximum 6 weeks. Re-order quantity 6,000 units. Find the minimum stock level.

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ROL = 800 × 6 = 4,800.
Min level = 4,800 − 500 × 5 = 2,300.

Answer: 2,300 units

Example 3 · level 3

Patel Packaging — Usage per week: minimum 300, normal 400, maximum 500 units. Lead time: minimum 5, normal 7, maximum 9 weeks. Re-order quantity 6,000 units. Find the maximum stock level.

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ROL = 500 × 9 = 4,500.
Max level = 4,500 + 6,000 − 300 × 5 = 9,000.

Answer: 9,000 units