# Inventory Management Problems and Solutions

Previous Lesson:

Next Lesson: Economic Order Quantity Problems

## 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

## 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

## 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 MCQs

Inventory Management

Economic Order Quantity

Economic Order Quantity MCQ

Economic Order Quantity Problems

### More Interest

Labor Cost

Payroll Systems

Labor Cost MCQs

Labor Cost Problems

Inventory Valuation

1. Thanks for another excellent article. Where else could anyone get that kind of information in such a perfect way of writing?

2. fantastic article i like it god bless you

3. Thank you for some other wonderful article. Where else could anybody get that kind of information in such an ideal way of writing? I’ve a presentation subsequent week, and I’m on the look for such info.

4. This is my first time pay a quick visit at here and i am in fact pleassant to

5. You’re so cool! I do not suppose I’ve read anything like this before. So great to find somebody with a few original thoughts on this subject matter. Seriously.. thank you for starting this up. This site is something that is required on the web, someone with a little originality!

6. My relatives every time say that I am killing my time here at net, but I know I am getting knowledge daily by reading these good posts.

7. Way cool! Some very valid points! I appreciate you writing this article plus the rest of the website is really good.

8. Heya just wanted to give you a quick heads up and let you know a few of the pictures aren’t loading properly. I’m not sure why but I think its a linking issue. I’ve tried it in two different web browsers and both show the same results.

9. I think the admin of this site is truly working hard in favor of his web site, as here every material is quality based data.