Maximum Stock Level Formula
Maximum Stock Level formula is given below. This formula has been explained with an example.
Maximum Stock level = Reorder level + reorder Quantity- (Minimum usage x Minimum lead time) |
Maximum Stock Level Formula Example
Reorder level of Inventory = 20,000
Reorder Quantity (EOQ) = 15,000
Minimum usage of inventory = 5000
Minimum lead time for arrival = 2 weeks
Solution
Maximum level = Reorder level + reorder Quantity- (minimum usage x minimum lead time)
=20,000 + 15,000- (5000 x2)
=35,000-10000
=15,000
Significance of Maximum Stock Level Calculation
Holding of stock or inventory is not free; rather holding of stock requires reasonable amount of expenditure or cost. Maximum stock level is calculated for reducing holding cost of the company. Any Stock above maximum stock level is not recommended.
Reasons of Stock level above the maximum Stock level
One of the main reasons is low consumption of stock that has resulted in piling up of stock. Therefore stock level may be controlled either by reducing re order quantity or reducing the re order level.
Important factor for Maximum Stock Level Determination
Important factor for determining the maximum stock level includes the storing or holding cost, space availability, seasonal stock consumption fluctuation etc. Therefore stock level formula just provides a general guidance, therefore management decide the actual stock level on the bases above mentioned factors.
Maximum Stock Level Practice Question
Reorder level of Inventory = 30,000
Reorder Quantity (EOQ) = 6,000
Minimum usage of inventory = 4,000
Minimum lead time for arrival = 3 weeks
Calculate Maximum Stock Level?
No comments:
Post a Comment