Select Page

# Inventory Management Problems and Solutions

## Problem # 1:

From the following calculate   (i) Re-ordering Level and                  (ii) Minimum Level

Minimum usage      100 units per week               Normal usage                 200 units per week

Maximum usage     300 units per week               Re-order period             4 to 6 weeks

### Solution:

(i) Re-ordering Level

Re-ordering level= Maximum consumption * Lead Time [maximum]

Re-ordering level= 300 * 6

Re-ordering level= 1,800 Units per week

(ii) Minimum Level

Minimum level= Reorder level – (Average consumption x lead time [Average])

Minimum level= 1,800 – (200 x 5)

Minimum level= 1,000 Units per week

>> Further Reading Inventory Management.

## Problem # 2:

Calculate Ordering Level, Minimum Level and Maximum Level from the following data:

Re-order quantity                       1,500 units                      Re-order period                    4 to 6 weeks

Maximum consumption            400 units per week       Average consumption        300 units per week

Minimum consumption            250 units per week

### Solution:

(i) Ordering Level

Ordering level= Maximum consumption * Lead Time [maximum]

Ordering level= 400 * 6

Ordering level= 2,400 Units per week

(ii) Minimum Level

Minimum level= Reorder level – (Average consumption x lead time [Average])

Minimum level= 2,400 – (300 x 5)

Minimum level= 900 Units per week

(iii) Maximum Level

Maximum stock level= Reorder level – (Min consumption * Lead time [minimum]) + EOQ

Maximum stock level= 900 – (250 * 4) + 1,500

Maximum stock level= 2,400 – (1,000) + 1,500

Maximum stock level= 2,900 Units per week

>> Further Reading Inventory Valuation.

## Problem # 3:

The following information is available in respect of component DP 5:

Maximum stock level                                                 8,400 units

Budgeted consumption- maximum                        1,500 units per month

Budgeted consumption- minimum                         800 units per month

Estimated delivery period                                         Maximum 4 months and minimum 2 months

You are required to calculate Re-order level

### Solution:

Ordering Level

Ordering level= Maximum consumption * Lead Time [maximum]

Ordering level= 1,500 * 4

Ordering level= 6,000 Units per week

>> Do Practice Inventory Valuation MCQ.

## Problem # 4:

From the following date for the last twelve months, compute the Average Stock Level for a component.

Maximum usage in a month           300 units          Minimum usage in a month              200 units

Average usage in a month              225 units            Re-ordering quantity                          750 units

Time lag procurement of material                   Maximum 6 months and Minimum 2 months

### Solution:

Average Stock Level

Average Stock Level = Minimum Stock Level + ½ of EOQ

Minimum level= Reorder level – (Average consumption x lead time [Average])

Re-ordering level= Maximum consumption * Lead Time [maximum]

Re-ordering level= Maximum consumption * Lead Time [maximum]

Re-ordering level= 300 * 6

Re-ordering level= 1,800 Units per month

Minimum level= Reorder level – (Average consumption x lead time [Average])

Minimum level= 1,800 – (225 x 4)

Minimum level= 900 Units per month

Average Stock Level = Minimum Stock Level + ½ of EOQ

Average Stock Level = 900 + ½ (750)

Average Stock Level = 1,275 Units per month

>> Practice Inventory Valuation Problems and Solutions.

## Problem # 5:

Find out Minimum Stock Level, Maximum Stock Level and Ordering Level from the following particulars:

Minimum consumption       100 units per day              Maximum consumption    175 units per day

Normal consumption           125 units per day               Re-order quantity                1,500 units

Minimum period for receiving goods      7 days             Maximum period for receiving goods   15 days

Normal period for receiving goods   10 days

### Solution:

(i) Ordering Level

Ordering level= Maximum consumption * Lead Time [maximum]

Ordering level= 175 * 15

Ordering level= 2,625 Units per week

(ii) Minimum Level

Minimum level= Reorder level – (Average consumption x lead time [Average])

Minimum level= 2,625 – (125 x 10)

Minimum level= 1,375 Units per week

(iii) Maximum Level

Maximum stock level= Reorder level – (Min consumption * Lead time [minimum]) + EOQ

Maximum stock level= 2,625 – (100 * 7) + 1,500

Maximum stock level= 3,425 Units per week

>> Further Reading Cost of Goods Sold.

## Related Topics

Inventory Management Problems PDF

Inventory Management

Inventory Management MCQs

## Related Courses

Principles of Accounting

Cost Accounting

Principles of Finance