Reorder Level

Reorder level (or reorder point) is the inventory level at which a company would
place a new order or start a new manufacturing run.
Formula: Re-order level=Maximum usage × Maximum re-order period.
Minimum level of stock
The minimum level of stock is a certain predetermined minimum quantity of raw
materials or merchandise inventory which should always be available in stock in
the normal course of business.
Formula: Minimum Level of inventory = Re-order level – (Normal usage ×
Average lead time)
Maximum Level Stock
The maximum stock limit is upper level of the inventory and the quantity that must
not be exceeded without specific authority from management.
Formula: Maximum Level = Re-order Level + Re-order quantity - (Minimum
consumption x Minimum Delivery Time)
Average Stock level
Average stock level shows the average stock held by a firm. The average stock
level can be calculated with the help of following formula.
Formula: Average Stock Level = (Minimum Level + Maximum Level)/2
 Problem: 1
In manufacturing its products, a company uses three raw materials, A, B and C, in respect of which the
following particulars are available:
Raw Uses of per Re- Price Delivery period in weeks Re-order Minimul
Material unit product order Per kg Level (kg) Level
(kg.) Quantity Minimum Average Maximum (kg)
A 10 10,000 10 1 2 3 8,000
B 4 5,000 30 3 4 5 4,750
C 6 10,000 15 2 3 4 ------- 2,000
Weekly production varies from 175 to 225 units, average being 200 units.
What would you expect the quantities of the following to be?
a. Minimum Stock of A
b. Maximum Stock of B
c. Re-order Level of C
d. Average Stock Level of A

Problem: 2
The following data in respect of raw materials were collected from the records of Tibet
manufacturing company.
Annual requirements 3,000 units
Purchase price each unit Tk. 10
Cost per each order Tk. 30
Carrying cost percentage 5%
Carrying cost per unit Tk. 0.50
Average daily usage 12 units
Total working days 250 days
Safety stock 100 units
Lead time in days 5
You are required to calculate:
a.Economic order quantity(EOQ) b. Total number of order c. Total cost of ordering
d. Average inventory e. Cost of carrying f. Total cost of inventory
g. Interval periods between orders h. Re-order point i. Value per order
j. Normal maximum inventory k. Average normal inventory
Problem: 3
Metro Corporation requires 75,000 units of product N annually. Monthly average
of the product is 6,250 units. Purchase price of the product N is Tk. 1.50 per unit,
annual carrying cost is 20% and per order cost is Tk. 18. Lead time is 45 days and
Metro Corporation its safety stock at 3,250 units.
 Required:
a. Economic order quantity(EOQ)
b. Total number of order per year
c. Re-order point
d. Economic order quantity (EOQ) when purchase price of the product “N”
increase to Tk. 4.50 per unit.
Problem: 4
Beta Company has developed the following costs and other data pertaining to one
of its raw materials:
Normal use per day 400 units
Lead time 8 days
Maximum use per day 600 units
Cost of placing one order Tk. 20
Minimum use per day 100 units
Cost per unit of material Tk. 2.50
Working days per year 250
Carrying cost percentage 10%
 Required:
a. Economic order quantity(EOQ)
b. Safety stock
c. Re-order point
d. Normal maximum inventory
Problem: 5
The following details are available in respect of a firm:
Inventory requirement per year 6,000 units
Cost per unit(Other than carrying and ordering costs) Tk. 5
Carrying cost per unit Tk. 1
Cost of placing each order Tk. 60
Alternative order size (units) 6,000, 3,000, 2,000, 1,200, 1,000, 600 and 200
Calculate EOQ under tabular method