Question

Question 4:

The following information pertains to raw material ‘A’ used in production process of Part Pearl Inc.,

Normal usage 50 tons per week

Maximum usage 75 tons per week

Minimum usage 25 tons per week

Re-ordering Quantity30 unit

Re-order period (Lead Time) 4 to 6 weeks

You are required to calculate for Raw material A:

(a) Re-order Stock Level

(b) Minimum Stock Level

(c) Average stock level; and

(d) Maximum stock level

Answer 1

Average usage = (75+25) / 2= 50

Average ROP = (4+6)/2 =5

a. Reorder stock level = Maximum reorder period * Maximum consumption = 75 tons * 6 weeks = 450 tons

b. Minimum stock level = Reorder stock level - (Average usage * Average ROP) = 450 - ( 50*5) = 200 tons

c. Average stock level = ( Minimum stock level + Maximum stock level) /2 = ( 380+200)/2 = 290 tons

d. Maximum stock level = Reorder level + Re order quantity - ( Minimum usage * Minimum reorder period)

= 450+ 30 - (25*4) = 380 tons