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Re-ordering level is calculated as
- a)Maximum consumption rate x Maximum re-order period
- b)Minimum consumption rate x Minimum re-order period
- c)Maximum consumption rate x Minimum re-order period
- d)Minimum consumption rate x Maximum re-order period
Correct answer is option 'A'. Can you explain this answer?
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Re-ordering level is calculated asa)Maximum consumption rate x Maximum...
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.
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Re-ordering level is calculated asa)Maximum consumption rate x Maximum...
Re-ordering level is an important concept in inventory management. It refers to the point at which a new order needs to be placed in order to replenish the inventory and avoid stockouts. The re-ordering level is calculated by multiplying the maximum consumption rate by the maximum re-order period.
Explanation:
- Maximum consumption rate: This refers to the highest rate at which inventory is consumed or used by the organization. It takes into account factors such as customer demand, production requirements, and any other factors that may impact the rate of consumption.
- Maximum re-order period: This refers to the longest period of time that can elapse between placing an order and receiving the new inventory. It takes into account factors such as supplier lead time, transportation time, and any other delays that may occur in the procurement process.
- Multiplying the maximum consumption rate by the maximum re-order period: By multiplying these two values together, we can calculate the re-ordering level. This is because the re-ordering level needs to take into account both the rate at which inventory is consumed and the time it takes to replenish the inventory.
- Significance of re-ordering level: The re-ordering level is important because it helps organizations maintain a sufficient level of inventory to meet customer demand without incurring stockouts. By placing orders at the re-ordering level, organizations can ensure that they have enough inventory on hand to fulfill orders while also minimizing the risk of overstocking.
- Balancing inventory costs: Calculating the re-ordering level is also important for balancing inventory costs. By understanding the maximum consumption rate and the maximum re-order period, organizations can optimize their inventory levels to minimize carrying costs while still meeting customer demand.
In conclusion, the re-ordering level is calculated by multiplying the maximum consumption rate by the maximum re-order period. This calculation helps organizations maintain an appropriate level of inventory to meet customer demand while also minimizing inventory costs.
Explanation:
- Maximum consumption rate: This refers to the highest rate at which inventory is consumed or used by the organization. It takes into account factors such as customer demand, production requirements, and any other factors that may impact the rate of consumption.
- Maximum re-order period: This refers to the longest period of time that can elapse between placing an order and receiving the new inventory. It takes into account factors such as supplier lead time, transportation time, and any other delays that may occur in the procurement process.
- Multiplying the maximum consumption rate by the maximum re-order period: By multiplying these two values together, we can calculate the re-ordering level. This is because the re-ordering level needs to take into account both the rate at which inventory is consumed and the time it takes to replenish the inventory.
- Significance of re-ordering level: The re-ordering level is important because it helps organizations maintain a sufficient level of inventory to meet customer demand without incurring stockouts. By placing orders at the re-ordering level, organizations can ensure that they have enough inventory on hand to fulfill orders while also minimizing the risk of overstocking.
- Balancing inventory costs: Calculating the re-ordering level is also important for balancing inventory costs. By understanding the maximum consumption rate and the maximum re-order period, organizations can optimize their inventory levels to minimize carrying costs while still meeting customer demand.
In conclusion, the re-ordering level is calculated by multiplying the maximum consumption rate by the maximum re-order period. This calculation helps organizations maintain an appropriate level of inventory to meet customer demand while also minimizing inventory costs.
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Re-ordering level is calculated asa)Maximum consumption rate x Maximum re-order periodb)Minimum consumption rate x Minimum re-order periodc)Maximum consumption rate x Minimum re-order periodd)Minimum consumption rate x Maximum re-order periodCorrect answer is option 'A'. Can you explain this answer?
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