# Inventory Control: Re-order Level

1. says

Hi John,
Thank you for your efforts, it is really effective and help.
Could you please enplane once again Example 8. You deducted 210 from 480, but in descriptions we see that the re-ordering quantity is 1000 units each time. So for e.g. in the beginning we’ve got 1000 units, during 3 weeks we’ve sold 210, so we’ve got 1000-210=790 units left. Next order 1000+790=1790 – max inventory level
Thank you!

• says

1,000 is the quantity that we order each time.

To be certain of not running out of inventory we need to place an order when we have enough to supply 120 units a week for 4 week. So we place an order when we have 480 left.

The minimum we will supply is 70 a week for 3 weeks – 210 units. So the maximum that will be left just before the new order arrives is 480 – 210 = 270. The new order is for 1,000, so the maximum inventory is 1270.

• says

You took as base max 480 units. But from description we can also decide that base units in the beginning is 1000.
Anyway I understood the point.

• says

At the very beginning there are certainly 1000, but we will be supplying them gradually to customers and we will only place a new order (the reorder level) when there are 480 left in inventory.

• says

Aha, absolutely! If in the very beginning we had 1000 units and if we would like to get max. level of stock than we should assume that next 1000 units should be supplied after 3 weeks (min. lead time). We do not need wait till stock will become to 480 units.
Sorry for dispute. I clearly understand that is not important topic but anyway

• says

But we do need to wait. The whole point is not to carry more inventory than we need (because it costs money to hold more inventory) but at the same time to remove the risk of running out (and therefore turning away customers).

If the supplier could deliver instantly then we would wait until the inventory was zero and then place another order. Because there is a lead time, we have to order when we still have some left.

2. says

I just want to ask if these lecture are suitable for Dec-14 semester. Yet these are really good and as per study scheme but i am still scared. Need to note i will give paper Based Exams.

• says

Don’t worry – everything on our website is relevant for December 2014, both CBE and paper-based.

• says

Thanks for your quick respond…that’s a relief.

3. says

Sky ltd wishes to minimise its inventory costs. At the moment its costs are \$10 per order and holding costs are \$0.10 per unit per month.Sky ltd estimates annual demand to be 15000 units.

What is the optimal reorder quantity (to the nearest 100 units)?
A.500 B.1000 C.1200 D.1700.

• says

You just use the formula on the formula sheet given in the exam.

D – the annual demand = 15000
Co – the cost per order = 10
Ch – the holding cost per unit per annum = 12 x 0.1 = 1.20

Using the formula you should get the EOQ = 500

Hope that helps

(PS This doesn’t actually have anything to do with my lecture on ‘reorder level’. Please in future ask this sort of question in the F2 Ask the ACCA Tutor Forum and I will answer you there )

4. says

i just dont understand the requirement of this question ?????????????????????///

A company purchases 5,000 units per quarter at even rate throughout the year.
Each order placed with the supplier incurs a delivery charge of \$20.
The annual cost of holding one unit in inventory is \$5.

What is the minimum total of the inventory costs (order costs plus holding costs) per year?

\$2,000
\$1,000
\$15,000
\$8,000

• says

The minimum inventory costs occur at the EOQ.

So you need to calculate the EOQ using the formula, then you need to calculate the total inventory costs.

• says

I am sorry but the total inventory cost = ordering cost + annual holding cost, right? then why the answer is 2,000? My answer is 2,080 which does not exist in the choices. Lol

• says

The EOQ is 400 units (demand = 20,000 per year; holding cost = \$5; order cost = \$20)

With an EOQ of 400, it means 50 orders a year, so cost = 50 x \$20 = \$1,000
The average inventory is 400/2 = 200, so cost = 200 x \$5 = \$1000

So total inventory cost if \$2,000.
I cannot imagine where 2,080 came from.

• says

Admin is correct – the ACCA no longer publishes the examiners name. However the F9 examiner is the same person who has been the examiner for many years.

• says

Inventory control techniques are examinable in Paper F9 as well as in F2.
Certainly reorder levels are unlikely, but it is so little that it is better to be safe than sorry.
The rest of inventory control certainly does get examined.

5. says

Thanks John for your lectures….I really really enjoy them. You make them really interesting especially with your irony..I love it!

6. says

its informative I like it.i really also want downloadable revision video lectures f9.how can I get these?

• says

If you go to the F9 page you will find a link to all the F9 lecture available.

(Lectures can only be viewed online – only Course Notes are downloadable – it is the only way that we can keep this website free of charge.)

• says

I have downloaded the notes and printed them. Section on EBQ and reorder level are missing. It is only EOQ and JIT in the notes.

John would You mind going to the notes and double checking what we are saying please?

I really appreciate these lectures and am enjoying this course. Thank you so much.

• says

EBQ and reorders level are not exam unable in Paper F9 – that is why they are not in the F9 notes

• says

EBQ and reorder levels are examinable in Paper F2 and are in the F2 Course Notes.

They are not examinable in Paper F9 which is why they are not mentioned in the Paper F9 material.

7. says

can I save the videos I download on my laptop so that I can review them? if yes please let me know how to do it, thank you

• says

No – the videos can only be viewed online – it is the only way that we can keep this site free of charge.

8. says

He can still ask any of them, but the most likely always is reorder level and maximum inventory level.

9. says

For the Dec 10 exam can the examiner only ask about reorder inventory level and maximum inventory level and none of the others i.e minimum level, average level, danger level?