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Stock Levels (Reorder, Minimum, Maximum and Average Level) - Material Costing || matz usury
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Stock Levels (Reorder, Minimum, Maximum and Average Level) - Material Costing
MAXIMUM LEVEL - HOW TO CALCULATE MAXIMUM INVENTORY LEVEL
Stock Levels - Reorder, Minimum, Maximum, Average - BCOM CMA / CA INTER


In this video I have explained the concept and formulas of Stock Levels of Inventory Control.


Here I have explained
1.Reorder Level
2.Reorder Quantity
3.Minimum Stock Level
4.Maximum Stock Level
5.Average Stock Level
6.Danger Stock Level
The maximum level of inventory could be explain as the maximum capacity of a business to stock goods in its warehouse, which may be due to some reasons like demand limitation of goods (either in production or sales), the storage capacity of business
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Calculation of Reorder level, minimum level, maximum level
Calculation of Stock Levels



This article throws light upon the four major types of stock levels of inventory. The types are: 1. Minimum Level 2. Maximum Level 3. Danger Level 4. Average Stock Level.

Stock Level: Type # 1. Minimum Level:
This represents the quantity which must be maintained in hand at all times. If stocks are less than the minimum level, then the work will stop due to shortage of materials.

Following factors are taken into account while deciding minimum stock level:

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(i) Lead Time:

A purchasing firm requires some time to process the order and time is also required by the supplier/vendor to execute the order. The time taken in processing the order and then executing it is known as lead time. It is essential to maintain some inventory during this period to meet production requirements.

(ii) Rate of Consumption:

It is the average consumption of materials items in the industry. The rate of consumption will be decided on the basis of past experience and production plans.

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(iii) Nature of Material:

The nature of material also affects the minimum level. If a material is required only against special orders of the customer then minimum stock will not be required for such materials. Wheldon has given the following formula for calculating minimum stock level: Minimum stock Level = Re-ordering Level – (Normal Consumption x Normal Reorder Period)

(iv) Re-ordering Level:

When the quantity of materials reaches a certain level then fresh order is sent to procure materials again. The order is sent before the materials reach minimum stock level.

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Reordering level is fixed between minimum level and maximum level. The rate of consumption, number of days required to replenish the stocks, and maximum quantity of materials required on any day are taken into consideration while fixing reordering level.

Re-ordering level is fixed with following formula:

Reordering Level = Maximum Consumption Rate x Maximum Reorder period.

Stock Level: Type # 2. Maximum Level:
It is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity exceeds maximum level limit then it will be termed as overstocking. A firm avoids overstocking because it will result in high material costs. Overstocking will lead to the requirement of more capital, more space for storing the materials, and more charges of losses from obsolescence.

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Maximum stock level will depend upon the following factors:

1. The availability of capital for the purchase of materials in the firm.

2. The maximum requirements of materials at any point of time.

3. The availability of space for storing the materials as inventory.