CA Intermediate · Financial Management and Strategic Management · Management of Inventory
Kaveri Textiles uses 18,000 units of a material a year, spread evenly over 360 days. Lead time is 10 days and safety stock is 300 units. What is the reorder level?
The reorder level is 800 units. Daily usage is 50 units, so consumption over the 10-day lead time is 500 units, and adding the safety stock of 300 units gives the level at which a fresh order should be placed.
- A500 units
- B800 unitsCorrect
- C1,800 units
- D2,100 units
Explanation
Daily usage = 18,000/360 = 50 units. Usage during lead time = 50 x 10 = 500. Reorder level = 500 + safety stock 300 = 800 units. Choosing 500 ignores safety stock; 2,100 wrongly uses 18,000/10 plus... confusion of lead time with a division.
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