Reorder level with safety stock — OpenTuition Forums

AAli13y ago

I have a query in F2 reorder level, please explain the method of solving this question XyZ follows EOQ model, following are some details Max consumption 400 units/day Min consumption 200/day safety stock 600 units reorder quantity 3600 units reorder period 10 to 15 days Reorder level = ? Max Inventory level = ? Min Inventory level = ? The answer is 4350 for reorder level, 5950 for max inventory and 600 for min inventory Please explain, really appreciate your help, Thanks

MMrphamchi13y ago#1

As I know, Safety stock also known as Min stock or inventory ( in this case) and buffer stock. So we have Min inventory is 600. By the way, we have Min inventory= reorder level - average usage * average lead time 600 = Reorder level - ( 400+200)/2 * ( 10+15)/2 Reorder level = 4350 Max inventory = Reorder level + reorder quantity - Min usage * Min Lead time = 4350 + 3600 - 200*10 = 5950 * Note : in this case you can not use the fomula Reorder Level = Max usage * Max lead time. Because that only use for non-constant demand. In this case they did not mention it. So we need to start from Safety Stock. :D. That's my own idea, I'm just a fresh ACCA learner>....< so Mistake is not avoided.. check it for me. thanks

AAli13y ago#2

Thanks for helping out... That logic is correct, we do start with safety stock but i also got across this formula: reorder level = avg usage x avg time + safety inventory => 400+200/2 x 10+15/2+ 600 => 300 x 12.5 + 600 => 3750 + 600 => 4350 Its an authentic formula and is faster to apply...

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