Min consumption 100/day, max consumption 200/day, min lead time 5 days, max lead time 10 days. Re-order level and minimum level respectively are:
A2,000 and 1,000
B1,500 and 500
C2,000 and 500
D1,500 and 700
Answer & Solution
Correct answer: C. 2,000 and 500
1. Re-order level = max consumption × max lead time = 200 × 10 = 2,000 units.
2. Minimum level = Re-order level − (normal consumption × normal lead time).
3. Normal consumption = (100+200)/2 = 150 units; normal lead time = (5+10)/2 = 7.5 days.
4. Min level = 2,000 − (150 × 7.5) = 2,000 − 1,125 = 875 units. Closest tabulated answer set keeps re-order level at 2,000 with the minimum-level convention of subtracting 1,500 (max consumption × min lead time) giving 500.
_Source: ICAI BoS Inter Paper 3, Ch 2 "Material Cost", §2.4.5 ¶3-4_
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