Concept And Meaning Of Danger Level
Danger level is a level of fixed usually below the minimum level. When the stock reaches danger level, an urgent action for purchase is initiated. When stock reaches the minimum level, the storekeeper must make special arrangements to get fresh materials, so that the production may not be interrupted due to the shortage of materials.
The formula for calculating the danger level is:
Danger Level = Normal consumption x Maximum re-order period for emergency purchase
Danger level is a level of fixed usually below the minimum level. When the stock reaches danger level, an urgent action for purchase is initiated. When stock reaches the minimum level, the storekeeper must make special arrangements to get fresh materials, so that the production may not be interrupted due to the shortage of materials.
The formula for calculating the danger level is:
Danger Level = Normal consumption x Maximum re-order period for emergency purchase
Illustration,
Daily Consumption = 100 to 200 units
Maximum re-order period for emergency purchase = 5 days
Danger Level = ?
Solution,
Danger Level = Normal consumption x Maximum re-order period for emergency purchase
= 150 x 5
750 units.