Skip to content

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

Surya Plastics uses 18,000 units a year, ordering cost is Rs 150 per order, carrying cost is Rs 6 per unit per year. Lead time is 10 days, safety stock is 200 units, and the year has 360 days. What is the reorder level?

Reorder level equals usage during lead time plus safety stock. Daily usage is 50 units, so lead-time usage is 500 units, and adding 200 units of safety stock gives 700 units. Leaving out safety stock would wrongly give 500 units.

  1. A700 unitsCorrect
  2. B500 units
  3. C900 units
  4. D200 units

Explanation

Daily usage = 18,000/360 = 50 units. Usage during lead time = 50 x 10 = 500 units. Reorder level = 500 + safety stock 200 = 700 units. The option 500 omits safety stock.

Did you get it right without looking?

One question tells you little. A timed set on Management of Inventory shows your real accuracy, how long you take and where you lose marks.

Practise Management of InventoryFree diagnostic mock

More Management of Inventory questions