Annual demand: 4,000 chairs
Max. Inventory : 75 chairs
Min. Inventory : 20 chairs
Lead time : 5 days
Re-order quantity : 100 chairs
Answer :
= 100/2 + 20
= 70 chairs.
But the equation for average inventory
= safety inventory + 1/2 reorder
quantity
And safety inventory( min. level)
= reorder level - (avg. usage × avg.
lead time)
So why did they take min. inventory to be 20 chairs?
Thank you so much :)
Ask the Tutor ACCA MA
Average inventory
6y ago#1Since the question gives you the minimum level of inventory, you do not have to try and calculate it yourself. The safety inventory (minimum level) is given as being 20 chairs.
Got it Sir. Thank you so much. It's no less than a blessing to be a part of opentuition.
6y ago#3You are welcome, and thank you for your comment :-)
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