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Inventory Levels Practice

This document contains 4 questions regarding inventory management calculations. Question 1 provides data on demand, costs, and lead times to calculate order quantity, reorder level, minimum inventory, and maximum inventory. Question 2 gives monthly usage data for 3 components to determine reorder levels, minimum levels, and maximum levels. Question 3 provides information on order quantity, safety stock, and variable demand to find reorder level and maximum inventory. Question 4 lists usage probabilities and lead times and asks to calculate average stock level.

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Muaaz Nayyar
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400 views2 pages

Inventory Levels Practice

This document contains 4 questions regarding inventory management calculations. Question 1 provides data on demand, costs, and lead times to calculate order quantity, reorder level, minimum inventory, and maximum inventory. Question 2 gives monthly usage data for 3 components to determine reorder levels, minimum levels, and maximum levels. Question 3 provides information on order quantity, safety stock, and variable demand to find reorder level and maximum inventory. Question 4 lists usage probabilities and lead times and asks to calculate average stock level.

Uploaded by

Muaaz Nayyar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CHAP 2 – INVENTORY MANAGEMENT

[INVENTORY LEVELS PRACTICE]


Question – 1
Haram Enterprises manufactures a special product “ZED”. The following particulars were selected for the
year 2016.
a) Ordering cost Rs. 100.
b) Holding Cost Rs.15.
c) Average demand per week 50 units.
d) Maximum demand per week 75 units.
e) Minimum demand per week 25 units.
f) Lead time 4-6 weeks
Assume there are 52 weeks in a year.
Required:
Compute from above:
• EOQ • Reorder level • Minimum Inventory level • Maximum inventory level.

Question – 2
Zameer Ltd. uses three types of materials A, B, C for production of “X”. The relevant monthly data for the
components are as given below:
Particulars A B C
Normal Usage (In Units) 200 150 180
Min. Usage (In Units) 100 100 90
Max. Usage (In Units) 300 250 270
Re-order Quantity(In Units) 750 900 720
Re-order Period(In Months) 2 to 3 3 to 4 2 to 3
Required:
Calculate for each component:
1) ROL 2) Min. Level 3) Max. Level

Question – 3
Aay Limited uses item “Z” in its production process. It purchases item ”Z” from an external supplier in
batches .For item ”Z”, the following information is relevant:
EOQ 2800 units
Safety stock 700 units
Average lead time 16 weeks
Minimum lead time 12 weeks
Usage in a month:
Units Prob.
900 60 %
400 40 %
Assume there are 48 weeks in a year.
Required:
Determine the inventory levels of item ”Z”:
1) Reorder level 2) Maximum inventory level.

Question – 4
Jahangir Ltd. (JL) imports a high value component for its manufacturing process. Following data, relating
to the component, has been extracted from RL’s records for last twelve months.
Particulars Details Probability
Maximum usage in a day 30 Units 25%
Minimum usage in a day 20 Units 75%
Maximum Lead Time 6 Months -
Minimum Lead Time 2 Months -
Re-order Quantity 2250 Units -

Required:
Calculate the average stock level for the component.

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CHAP 2 – INVENTORY MANAGEMENT
[INVENTORY LEVELS PRACTICE]
Solution – 1
i) EOQ
√ . . . . ( )
𝐸𝑂𝑄 = = = 186
. .

ii) Re-order level


ROL = Maximum usage x Maximum lead time = 75 x 6 = 450 units
iii) Minimum Level
Minimum Level = Re-order Level – (Avg. weekly demand x Avg. Lead Time (W-2))
= 450 units – (50 units x 5 weeks) = 200 units
iv) Maximum Level
Maximum Level = Re-order Level + Order Quantity – (Min. weekly Demand x Min. Lead Time)
= 450 units + 186 units – (25 units x 4 weeks) = 536 units

(W-1): Annual demand = Average weekly demand x No. of weeks = 50 x 52 = 2600


(W-2): Average lead time = = =5

Solution - 2

Particulars A B C

Max. usage [A] 300 250 270

Min. usage [B] 100 100 90

Avg. usage [C] 200 150 180

Max. Lead Time (in months) [D] 3 4 3

Min. Lead Time (in months) [E] 2 3 2

Order Quantity [F] 750 900 720

(a) Re-order Level [G=A x D] 900 1000 810


(b) Min. Inventory Level [G – (C x )] 400 475 360
(c) Maximum Level [G – (B x E) + F] 1450 1600 1350

Solution – 3
Average monthly demand = 900x 60/100 + 400 x 40/100 = 700
Average lead time = 16/4 = 4 months
i) Re-order Level = (Avg. demand x Avg. Lead Time) + Safety Stock = (700 x 4) + 700 = 3500
ii) Max. Inventory Level = ROL - (Min. demand x Min. Lead Time) + Order quantity

= 3500 – (400 X 3) + 2800 = 5100

Solution – 4
Maximum Monthly Demand = 30 units x 30 days = 900 units
Minimum Monthly Demand = 20 units x 30 days = 600 units
Average Monthly Demand = 900 x 0.25 + 600 x 0.75 =225+450= 675 units
Re-order Level = Maximum Monthly Demand x Maximum Lead Time
= 900 x 6 = 5400
Safety Stock = ROL – (Average Monthly Demand x Average Lead Time)
= 5400 – (675 x 4) = 2700
Average stock level = OQ/2 + Safety Stock
𝟐𝟐𝟓𝟎
= + 2700 = 1125 + 2700 = 3825 units
𝐌𝐚𝐱𝐢𝐦𝐮𝐦 𝐥𝐞𝐚𝐝 𝐭𝐢𝐦𝐞 𝐌𝐢𝐧𝐢𝐦𝐮𝐦 𝐥𝐞𝐚𝐝 𝐭𝐢𝐦𝐞 𝟔 𝟐
(W-1) Average lead time = = =4

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