Inventory Oil calculation

Maximum Stock Level: Quantity of material above which the stock of an item
should not be allowed to go.
Maximum Stock Level = (Reorder level + Reorder Quantity) (Minimum
Consumption * Minimum Delivery Period)

Minimum Stock Or Safety Stock Level: The level below which inventory should
never be drop. This number is zero if only if back orders are not permitted. It is
determined by calculating the estimated amount of time form the beginning of
production , through the time of transit, to the point at which the product is either
on the shelf or in the hands of the customer who ordered it.
Minimum Stock Level = Reorder level (Average Consumption * Average Reorder
Period)

Reorder Stock Level : The level of inventory which triggers an action to replenish
that particular inventory stock. It is a minimum amount of an item which a firm
holds in stock, such that, when stock falls to this amount, item must be reordered.
Reorder Stock Level = Maximum Consumption * Maximum Reorder Period
 Danger Stock Level : When this level of stock is reached, the try is made to purchase
material from the nearest possible source or place so that the workers and plant and
machinery may not remain idle due to shortage of material supplies.
Danger Stock Level = Average Consumption * Maximum Reorder Period for emergency
purchase

Litres of Oil used per engine = 4.8 litre

Minimum number of diesel engine made = 60
Maximum number of diesel engine made = 120
Reorder Period = 13-15 days
Reorder Quantity = 18000 litres
Maximum Reorder Period for emergency purchase = 4 days

Maximum Stock Minimum Stock Reorder Stock Danger Stock Level

Level Level Level

27,216 Litres 4,896 litres 12,960 litres 2,304 litres

 Reorder Stock Level = Maximum Consumption * Maximum Reorder Period
= (180 * 4.8) * 15 = 12960 litres
Maximum Stock Level = Reorder Level + Reorder Quantity (Minimum Consumption *
Minimum Reorder Period)
= 12960 + 18000 - ((60*4.8) * 13) = 27216 litres
Minimum Stock Level = Reorder Level (Average Consumption * Average Reorder
Period)
= 12960 - ((120*4.8) * 14) = 4896 litres
Danger Stock Level = Average Consumption * Maximum Reorder Period for emergency
purchase
= (120 * 4.8) * 4 = 2304 litres