ACCA MA · Chapter 4 · Question 3 of 11
Daily usage of a material ranges from 300 to 500 units, and the supplier lead time ranges from 8 to 12 days. To avoid running out of inventory, what should the reorder level be?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 6,000 units
Explanation
Reorder level = maximum usage x maximum lead time = 500 x 12 = 6,000 units. This means there is enough inventory to cover the worst case before the new order arrives. Average usage x average lead time (400 x 10 = 4,000) would risk a stockout.
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