COST ACCOUNTING
INVENTORY AND PRODUCTION MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The amount of inventory that the business should not fall below
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The amount of inventory that the business should not rise above
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The time that it will take for the stock to be delivered to the business
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The maximum amount of stock that the customer is allowed to order
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Detailed explanation-1: -Maximum Level: 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-2: -maximum inventory levels = reorder point + reorder quantity – [minimum consumption × minimum lead time].
Detailed explanation-3: -The “Min” value represents a stock level that triggers a reorder and the “Max” value represents a new targeted stock level following the reorder. The difference between the Max and the Min is frequently interpreted as the EOQ (Economic Order Quantity).
Detailed explanation-4: -What are minimum inventory levels? Your minimum inventory levels are the lowest amount of a product that you can have in stock and still be able to meet customer demand. This number is important because it helps you avoid running out of a product, which could lead to lost sales and unhappy customers.