CA Intermediate · Financial Management and Strategic Management · Management of Inventory
A firm uses 60 units per day, with a lead time of 10 days and a safety stock of 150 units. What is its reorder level?
Reorder level is consumption during the lead time plus safety stock. Here 60 units a day over 10 days is 600 units, and adding 150 units of safety stock gives a reorder level of 750 units.
- A600 units
- B750 unitsCorrect
- C450 units
- D900 units
Explanation
Reorder level = usage during lead time + safety stock = 60 x 10 + 150 = 750. Choosing 600 ignores safety stock, the common error.
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