Question No 3

1. When should inventory be ordered to avoid from stock shortage? Discuss with practical example. Same examples will be marked zero.
2. From the book of records of Zaria Arts, it is found that the average daily requirement of 20 x 30 - 90 grams art paper are 100 reams, the maximum weekly requirements of art paper do not exceed 900 reams and minimum weekly requirements during any week of 6 working days are not likely to fall below 300 reams. The time required to receive supplies is 4 days with minimum time period of 3 days in normal situations. Company has to pay Rs. 10 every time an order is placed. Interest on average inventory is 5% with carrying cost of 7%. Company purchases one ream at Rs. 50. However, in case of emergency, it takes 2 days to receive supplies. Company requires 35000 reams on annual basis.

Required: Calculate maximum and minimum levels, average maximum level and danger level.