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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › PKA Co – BPP question 62
In the BPP revision kit there is a section B scenario where in one of the paragraphs it is mentioned that ” the current policy is to order 100 000 units when the inventory level falls to 35 000 units. Forecast demand to meet production requirements during the next year is 625000 units. The cost of placing and processing an order is $250, while the cost of holding a unit in stored is $0.50 per unit per year. Both costs are expected to be constant during the next year. Orders are received 2 weeks after being placed with the supplier. You should assume a 50 week year and that demand is constant throughout the year”.
Question 62: “What is the current minimum inventory level at PKA Co?”
options: 10000, 12500, 22500 and 35000
I used the formula: Minimum inventory = re-order level – (average usage x average lead time).
My doubt is related to the reorder level, which i considered as 100 000 units mentioned in the first sentence but they calculate it using 35 000 units which i was thinking it;s the buffer inventory. But if we calculate it with the 100 000 units mentioned then none of the options given is correct. If we calculate it with the 35000 units as reorder level then the minimum inventory is 10 000.
Am I wrong in considering the 100 000 units as reorder level?
Thank you!
100,000 is the current reorder quantity.
The reorder level is 35,000 – the level of inventory when a new order is placed.