reviewed. The important considerations which should govem the fixation of maximum level for various inventory items are as follows: The fixation of maximum level of an inventory item requires information about its re-order level. The re-order level itself depends upon its maximum rate of consumption and maximum delivery period. It in fact is the product of maximum consumption of inventory item and its maximum delivery period. Knowledge about minimum consumption and minimum delivery period for each inventory item should also be known. The determination of maximum level also requires the figure of economic order quantity. Availability of funds, storage space, nature of items and their price per unit are also important for the fixation of maximum level. In the case of imported materials due to their irregular supply, the maximum level should be high The formula used for its calculation is as follows: Maximum level of inventory - Re-order-level + Re-order quantity - (Minimum Consumption x Minimum re-order period) Danger Level It is the level at which normal issues of the raw material inventory are stopped and emergency issues are only made. As and when the danger level is reached, the material has to be purchased at any price at which available. The formula used for its calculation is as follows: S24 Danger level = Average Consumption x Lead time for emergency purchases Practical Examples Practical Example 3.Two components, X and Y are used as follows: Normal usage 100 per week each Maximum usage 150 per week each Minimum usage 50 per week each Re-order quantity X: 600; Y: 1000 Re-Order period X: 4 to 6 Weeks: Y: 2 to 4 weeks Calculate for each component (a) Re-ordering level. (b) Minimum level,(C) Maximum level (d) Average Stock level