Following information is available from the purchase books of a company: Cost of placing a purchase order - 10,000Number of units to be purchased…

(i) Re-ordering level = Maximum usage per period × Maximum lead time (ROL) = 2,000 units per day × 20 days = 40,000 units (ii) Maximum level= ROL+ROQ–[Min. rate of consumption× Min. lead time] (Refer to working notes 1 and 2) = 40,000 units + 20,000 units – [1,000 units per day x 10 days] = 50,000 units (iii) Minimum level = ROL – Average rate of consumption × Average re-order-period = 40,000 units – (1,500 units per day × 15 days) = 17,500 units (iv) Danger level = Average consumption × Lead time for emergency purchases = 1,500 units per day × 3 days = 4,500 units Working Notes: 1. Minimum rate of consumption per day Average rate of consumption = (Minimum rate of consumption + Maximum rate of consumption) / 2 1,500 units per day = (X units per day + 2,000 units per day) / 2 Or, X = 1,000 units per day 2. Re-order Quantity (ROQ) = √(2 x 12,50,000 units x 10,000) / 62.50 = 20,000 units