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# FORMULA’S OF MATERIALS

1 ] MINIMUM LEVEL :-

## It indicates the lowest figure of inventory balance,which must be maintained in hand

at all times,so that there is no stoppage of production due to non availability of inventory.

## RE-ORDER LEVEL – ( AVG.RATE OF CONSUMPTION * AVG.TIME

OF INVENTORY )

2 ] MAXIMUM LEVEL :-

It indicates the maximum figure of inventory quantity held in stock at any time.

MAX.LEVEL OF INVENTORY =

## RE-ORDER LEVEL + RE-ORDER QTY.- (MIN.CONSUMPTION *

MIN.RE-ORDER PERIOD)

3 ] RE-ORDER LEVEL :-

This level lies between minimum and the maximum levels in such a way that
before the material order is received into the stores, there is sufficient quantity on hand to
cover both normal and abnormal consumption situations. in other words, it is the level at
which fresh order should be placed for replenishment of stock.

RE-ORDER LEVEL =

MAX.CONSUMPTION * MAX.TIME

## This level of stock may be determined by using the following formula.

AVG.INVENTORY LEVEL =

## MIN. LEVEL + ½ RE-ORDER QUANTITY.

OR
MAX. LEVEL + MIN.LEVEL
2

5 ] DANGER LEVEL :-

It is the level at which normal issues of the raw material inventory are stopped
and emergency issues are only made.

DANGER LEVEL =

## AVG.CONSUMPTION * LEAD TIME FOR EMERGENCY PURCHASE

1/2
EQUIVALENT ORDERING QUANTITY [ E.O.Q ]= [2A*O]
C

EXM:-1

## Normal Usage : 50 per week each

Maximum usage : 75

## Re-order period : A 4 to 6 weeks

B 2 to 4 weeks
Calculate for each component ( a ) Re-ordering level ; ( b ) Minimum Level ; ( c )
Maximum Level ; ( d ) Average stock Level.

Solution :-

75 * 6

= 450 UNITS

## MIN. LEVEL = R.O.L – ( AVG.CONS. * AVG.TIME )

= 450 – ( 50 * 5 )

= 200 UNITS.

## MAX.LEVEL = R.O.L + R.O.Q – ( MIN.CONSUMPTION * MIN.TIME )

= 450 + 300 – ( 25 * 4 )

= 650 UNITS

2

= 650 + 200
2

= 425 UNITS.

SELF – 1

## Normal usage : 100 units each per week

Ordering quantities : X = 600 units
Y = 1000 units

Y = 2-4 weeks

## Calculate for each material ( 1 ) Maximum Level ( 2 ) Minimum Level ( 3 ) Ordering

Level.

BUDGETARY CONTROL

SUM :- 1

Material A