CA Intermediate · Financial Management and Strategic Management · Management of Inventory
Gupta Industries uses 36,500 units of a material a year (365 days). Lead time is 10 days and safety stock is 300 units. Maximum daily usage is not relevant. What is the reorder level?
Reorder level is usage during lead time plus safety stock. Daily usage is 100 units, so lead-time usage is 1,000 units. Adding safety stock of 300 units gives a reorder level of 1,300 units.
- A1,000 units
- B1,300 unitsCorrect
- C700 units
- D1,600 units
Explanation
Daily usage = 36,500/365 = 100 units. Usage during lead time = 10 x 100 = 1,000 units. Reorder level = 1,000 + safety stock 300 = 1,300 units. Option A omits safety stock, and option C wrongly subtracts it.
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