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The reorder level is it the same as reorder quantity ?..I am using bpp book . In some examples it refers to the reorder quantity as the same as reorder level in other examples it mentioned that the reorder quantity is the EOQ which is different than reorder level ,I am confused .
No – they are not the same.
The reorder quantity is the number of units that you order each time that you place an order.
The reorder level is the number of units still in inventory at the time you place the order.
For the exam it is the reorder quantity that is the most important.
The relevance of the reorder level is that if there is going to be a delay between placing an order and actually receiving the units. then you need to order when you still have units left in inventory (otherwise you will run out before the new order arrives).In EOQ calculations we always ignore this problem – the reorder level is not relevant for EOQ calculations.
Why is spare parts classified as inventory? As far as I am aware, spare parts is used to increase the life of machinery and therefore should be treated as an asset.
Thanks and awaiting your reply
Spare parts are treated like repairs – they are revenue expenditure and are not capitalised as assets.
It is because fitting a replacement part is simply getting the machine back to its original state. We only capitalise if it is improving on what the machine originally was – like turning it into a bigger machine.They are inventory until they are used – just as purchases are held as inventory until used.
hi john, on 19 March, 2015, I passed F2 with 82%. thank you. u have been helpful.
So if anything which is held is inventory, can different machine components which are used to produce different variations of the product be inventory?
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