What are stock Levels?
Every business has to maintain stocks of material/goods which are used during the production process. Following stock levels are self-explanatory. Like reorder level suggests that at what level we should re order the stock. Similarly maximum or minim stock levels suggest the maximum or minimum stocks to be maintained by the business. Danger level means that if the stock falls below this level, business might be suffering stock out costs i.e. stoppage in production, delayed delivery to client and loss of goodwill etc.
Solving questions on this topic is quite easy if you know the formulas. You will have to remember all these formulas.
I am giving you a good tip which will ease the process of remembering these formulas. If you haven’t already noticed, just note it that Requirement and Lead Time are same, i.e. if requirement is average, lead time is also average, if requirement is minimum lead time is also minimum in a formula.
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