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Marvin co. holds policy under which it orders almost 35000 units when inventory level falls to 22000 units. Expected demand to meet production requirement is 350000 units. Orders are received 3 weeks after being placed with the supplier. Assuming 52 weeks a year and constant demand calculate average inventory?
Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers together with explanations!
They are supplying 350,000/52 = 6,731 per week. Therefore over the 3 week lead time they will be selling 20,193 units. Since they place an order when they have 22,000 in inventory, then when the next order of 35,000 arrives the level of inventory will be 22,000 – 20,193 + 35,000 = 36,807.
Therefore the average inventory will be half way between these two figures which is (22,000 + 36,807) / 2 = 29,403.
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