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CA Intermediate · Financial Management and Strategic Management · Management of Inventory

Kaveri Plastics uses 36,000 units of raw material a year. Ordering cost is ₹250 per order and carrying cost is ₹5 per unit per year. Lead time is 10 days, and a 360-day year is assumed with uniform usage. Ignoring safety stock, what is the reorder level?

The reorder level is daily usage multiplied by lead time. Annual usage of 36,000 units over 360 days gives 100 units a day, and 10 days of lead time gives 1,000 units. EOQ and carrying cost are not needed for this calculation.

  1. A1,000 unitsCorrect
  2. B3,000 units
  3. C600 units
  4. D100 units

Explanation

Daily usage = 36,000/360 = 100 units. Reorder level = daily usage × lead time = 100 × 10 = 1,000 units. EOQ (√(2×36,000×250/5) = 1,897) is not needed for reorder level, so using it is a distractor error. Option 100 uses daily usage only.

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