Recorder point is determined by multiplying the lead time and the average usage.

INTRODUCTION TO COST ACCOUNTING

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A	TRUE
B	FALSE

Explanation:

Detailed explanation-1: -This method is used by businesses that keep extra stock on hand in case of unexpected circumstances. To calculate a reorder point with safety stock, multiply the daily average usage by the lead time and add the amount of safety stock you keep.

Detailed explanation-2: -The reorder point (ROP) is the minimum inventory or stock level for a specific product that triggers the reordering of more inventory when reached. When calculating the reorder points for different SKUs, the lead time it will take to replenish inventory is factored in to ensure inventory levels don’t reach zero.

Detailed explanation-3: -The reorder quantity formula is simple: just Average Daily Usage x Average Lead Time.

Detailed explanation-4: -The reorder point formula is your average daily use, multiplied by your average lead time in days – plus safety stock. Expressed as a formula that’s: (Average daily usage x Average lead time in days) + Safety stock.

Detailed explanation-5: -A simple reorder point calculation is daily unit sales multiplied by lead time between inventory order and its arrival in days, plus safety stock.

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