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Average inventory level

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Average inventory level

  • This topic has 3 replies, 2 voices, and was last updated 2 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • April 1, 2023 at 8:01 am #682112
    MelodyC
    Participant
    • Topics: 14
    • Replies: 20
    • ☆

    A large store selling office furniture stocks a popular chair for which the following information
    is available:
    Annual demand: 4,000 chairs
    Maximum inventory: 75 chairs
    Minimum inventory: 20 chairs
    Lead time: 5 days
    Re?order quantity: 100 chairs

    What is the average inventory level?
    A 75 chairs
    B 70 chairs
    C 55 chairs
    D 47 chairs

    The answer provided: Average inventory = ROQ/2 + minimum inventory
    = 100/2 + 20 = 70 chairs

    Sir, I understand the equation but what confuses me is the maximum inventory. Where did the 75 chairs come from and why it is irrelevant to solving this question?

    April 1, 2023 at 8:43 am #682119
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    If you have copied the entire question correctly, then it makes no sense at all. They are obviously ordering in advance (because of the lead time) but if they place orders such that the minimum inventory is 20 then when the new order arrives the inventory level will go to 120. In that case the average inventory will indeed be (120 + 20) / 2 = 70 chairs. However in that case the maximum inventory will be 120 chairs and not 75 🙂

    April 1, 2023 at 11:12 pm #682143
    MelodyC
    Participant
    • Topics: 14
    • Replies: 20
    • ☆

    I pondered over their maximum inventory thing for a long time, and my thought always ended up with 120 chairs, just as you explained to me. Huge relief to hear from you! Thank you!

    April 2, 2023 at 6:01 am #682146
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54696
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Average inventory level’ is closed to new replies.

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