Concept And Meaning Of Maximum Level
Maximum level is that level of stock, which is not normally allowed to be exceeded. Beyond the maximum stock level, a blockage of capital should be exercised to check unnecessary stock. The factory should not keep materials more than the maximum stock level. It increases the carrying cost of holding unnecessary inventory level. It is the opportunity cost of holding inventory.
The maximum stock level can be calculated by using the following formula:
Maximum Level = Re-order Level + Re-order quantity - (Minimum consumption x Minimum Delivery Time)
Illustration
The maximum stock level can be calculated by using the following formula:
Maximum Level = Re-order Level + Re-order quantity - (Minimum consumption x Minimum Delivery Time)
Illustration
Re-order quantity = 1000 units
Re-order Level = 1500 units
Re-ordering period = 4 to 6 days
Daily consumption = 150 to 250 units
Maximum Level = ?
Solution,
Maximum Level = Re-order level + Re-order quantity - (Minimum consumption x Minimum Re-ordering period)
= 1500+1000(150 x 4)
= 1900 units.
Re-order Level = 1500 units
Re-ordering period = 4 to 6 days
Daily consumption = 150 to 250 units
Maximum Level = ?
Solution,
Maximum Level = Re-order level + Re-order quantity - (Minimum consumption x Minimum Re-ordering period)
= 1500+1000(150 x 4)
= 1900 units.