CA Intermediate · Financial Management and Strategic Management · Management of Inventory
Verma Industries uses 7,200 units a year, evenly spread over 360 days. Lead time is normally 10 days but may be as long as 16 days. Maximum usage is 30 units a day, normal usage is 20 units a day and minimum usage is 10 units a day. What is the reorder level using maximum usage and maximum lead time?
The reorder level is 480 units, found by multiplying maximum daily usage of 30 units by maximum lead time of 16 days. The figure of 300 wrongly uses the normal lead time, and 200 uses normal values for both.
- A200 units
- B300 units
- C480 unitsCorrect
- D600 units
Explanation
Reorder level = maximum consumption x maximum lead time = 30 x 16 = 480 units. Using normal usage and normal lead time gives 20 x 10 = 200, and using maximum usage with normal lead time gives 300; both ignore the worst case.
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.
More Management of Inventory questions
- Kapoor Traders uses 10,000 units a year. Ordering cost is Rs 50 per order and carrying cost is Rs 1 per unit per year. What is the EOQ?
- Annual demand for a component at Kaveri Engineering is 20,000 units. Ordering cost is Rs 200 per order and carrying cost is Rs 4 per unit pe…
- Kaveri Industries needs 14,400 units a year. Ordering cost is Rs 450 per order and carrying cost is Rs 16 per unit per year. What is the EOQ…
- In inventory management, the ABC system of control classifies items mainly on which basis?
- In the ABC (Always Better Control) analysis of inventory, which statement correctly describes 'A' category items?
- In inventory control, FSN analysis classifies items of stock on the basis of which of the following?