CA Intermediate · Financial Management and Strategic Management · Management of Inventory
Narmada Textiles has a maximum usage of 400 units per day, a minimum usage of 200 units per day and a normal usage of 300 units per day. Lead time ranges from 5 to 9 days with a normal of 7 days. What is the maximum stock level if the reorder level is 3,600 units, the EOQ is 4,000 units, and the minimum usage over the minimum lead time is used?
Maximum stock level equals reorder level plus reorder quantity minus minimum consumption during minimum lead time. That is 3,600 plus 4,000 minus 1,000, giving 6,600 units. Forgetting to subtract the minimum consumption would wrongly give 7,600 units.
- A6,600 unitsCorrect
- B7,600 units
- C6,400 units
- D7,000 units
Explanation
Maximum stock level = ROL + EOQ − (minimum usage × minimum lead time) = 3,600 + 4,000 − (200 × 5) = 7,600 − 1,000 = 6,600 units. Option 7,600 omits the deduction of minimum consumption during the lead time.
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