- 5 Marks
FM – L2 – Q108 – Inventory Management
Question
Ravens Limited (RV) imports a high-value component for its manufacturing process. The following data, relating to the component, has been extracted from RV’s records for the last twelve months:
| Maximum usage in a month | 300 units |
|---|---|
| Minimum usage in a month | 150 units |
| Average usage in a month | 225 units |
| Maximum lead time | 6 weeks |
| Minimum lead time | 2 weeks |
Required
Calculate the average stock level for the component.
Answer
Average stock level:
Average stock level = minimum level + 1/2 (reorder quantity)
As minimum level is not given, it will be computed as follows:
Re-order level = maximum usage × maximum lead time
Re-order level = 300 × 6 = 1,800 units.
Minimum level = Re-order level – (average usage × average lead time)
Minimum level = 1,800 – (225 × (6 + 2) / 2) = 900 units.
Therefore, Average stock level = 900 + (1/2 × 750) = 1,275 units.
- Tags: Inventory Management, Lead Time, Reorder Level, Stock Levels, Usage Rates
- Level: Level 2
- Topic: Inventory Management
- Uploader: Samuel Duah