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A company uses 60,000 units per annum of an item, each costing Rs. 120. The ordering cost per order is Rs. 50 and annual inventory carrying costs are 15%. If the company operates 300 days on year, the lead time is given as 10 days and safety stock is 600 units. Find out the re-order level
  • a)
    2400
  • b)
    600
  • c)
    2600
  • d)
    2000
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
A company uses 60,000 units per annum of an item, each costing Rs. 12...
Annual demand = 60,000 units
Unit cost = Rs120/unit
Ordering cost = Rs. 50/order
Carrying costs = 15% × unit cost = Rs. 18/unit‐year
Working days = 300
LT = 10 days
SS = 600 units
ROL = SS + LT × consumption rate
= 200 units /day
ROL = 600 + 10 × 200 = 2600 units
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Most Upvoted Answer
A company uses 60,000 units per annum of an item, each costing Rs. 12...
Understanding the Re-order Level
The re-order level (ROL) indicates the inventory level at which a new order should be placed to avoid stockouts. It considers the lead time demand and safety stock.

Given Data:
- Annual demand (D): 60,000 units
- Cost per unit (C): Rs. 120
- Ordering cost (S): Rs. 50 per order
- Carrying cost percentage: 15%
- Operating days: 300 days
- Lead time (L): 10 days
- Safety stock (SS): 600 units

Calculating Daily Demand:
- Daily demand (d) = Annual demand / Operating days
- d = 60,000 units / 300 days = 200 units/day

Calculating Lead Time Demand:
- Lead time demand (LTD) = Daily demand × Lead time
- LTD = 200 units/day × 10 days = 2000 units

Calculating Re-order Level:
- Re-order Level (ROL) = Lead Time Demand + Safety Stock
- ROL = LTD + SS
- ROL = 2000 units + 600 units = 2600 units

Conclusion:
The re-order level is calculated as 2600 units, which indicates that when the inventory level reaches this point, a new order should be placed. Therefore, the correct answer is option 'C' (2600).
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Community Answer
A company uses 60,000 units per annum of an item, each costing Rs. 12...
Annual demand = 60,000 units
Unit cost = Rs120/unit
Ordering cost = Rs. 50/order
Carrying costs = 15% × unit cost = Rs. 18/unit‐year
Working days = 300
LT = 10 days
SS = 600 units
ROL = SS + LT × consumption rate
= 200 units /day
ROL = 600 + 10 × 200 = 2600 units
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A company uses 60,000 units per annum of an item, each costing Rs. 120. The ordering cost per order is Rs. 50 and annual inventory carrying costs are 15%. If the company operates 300 days on year, the lead time is given as 10 days and safety stock is 600 units. Find out the re-order levela) 2400b) 600c) 2600d) 2000Correct answer is option 'C'. Can you explain this answer?
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A company uses 60,000 units per annum of an item, each costing Rs. 120. The ordering cost per order is Rs. 50 and annual inventory carrying costs are 15%. If the company operates 300 days on year, the lead time is given as 10 days and safety stock is 600 units. Find out the re-order levela) 2400b) 600c) 2600d) 2000Correct answer is option 'C'. Can you explain this answer? for Mechanical Engineering 2024 is part of Mechanical Engineering preparation. The Question and answers have been prepared according to the Mechanical Engineering exam syllabus. Information about A company uses 60,000 units per annum of an item, each costing Rs. 120. The ordering cost per order is Rs. 50 and annual inventory carrying costs are 15%. If the company operates 300 days on year, the lead time is given as 10 days and safety stock is 600 units. Find out the re-order levela) 2400b) 600c) 2600d) 2000Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for Mechanical Engineering 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A company uses 60,000 units per annum of an item, each costing Rs. 120. The ordering cost per order is Rs. 50 and annual inventory carrying costs are 15%. If the company operates 300 days on year, the lead time is given as 10 days and safety stock is 600 units. Find out the re-order levela) 2400b) 600c) 2600d) 2000Correct answer is option 'C'. Can you explain this answer?.
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