ECONOMICS

Detailed explanation-1: -Re-order level is calculated as Maximum consumption x Maximum re-order period. To calculate the reorder level, multiply the average daily usage rate by the lead time in days for an inventory item.

Detailed explanation-2: -Reordering Level = Maximum Consumption Rate x Maximum Reorder period. It is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity exceeds maximum level limit then it will be termed as overstocking. A firm avoids overstocking because it will result in high material costs.

Detailed explanation-3: -Reorder point = total lead time demand + safety stock You’ll need to understand how to calculate your lead time demand and safety stock before using ROP, which, thankfully, is also fairly simple.

Detailed explanation-4: -To calculate maximum inventory levels, use the following formula: maximum inventory levels = reorder point + reorder quantity – [minimum consumption × minimum lead time].