The Cost Accountant of a Manufacturing concern has given the following details in respect of a raw material X: Difference between Minimum lead time…

Let the Minimum lead time be A and Maximum lead time be B B - A = 4 ...1 Average lead time of X = 7 A+B / 2 = 7 A + B = 14 ...2 From equation 1 and 2, we get A (Minimum lead time) = 5 B (Maximum lead time) = 9 (i) Re-order level = Maximum re-order period/lead time × Maximum consumption 1,80,000 units = 9 × Maximum consumption Maximum consumption = 20,000 units (ii) Maximum stock of A = Re-order level + Re-order quantity – (Minimum consumption × Minimum re-order period/lead time) 1,90,000 unit = 1,80,000 units + 90,000 units – (Min. Consumption x 5) Min. Consumption = 80,000 units / 5 = 16,000 units Part (ii) can also be done in following way: (ii) Minimum Stock Level = Re-order level – (Average Consumption X Average Lead time) 1,00,000 = 1,80,000 – (Average Consumption X 7) Average Consumption per day = 11,428.57 Average Consumption per day = (Maximum consumption + Minimum consumption)/ 2 11,428.57 = (20,000 + X) /2 Minimum Consumption per day = 2,858 units