From the following details given below, calculate: Re-ordering level (ii) Maximum level (iii) Minimum level (iv) Danger level Also what are the importance of determining maximum inventory level for a manufacturing company?

The EOQ is the optimal reordering quantity that minimizes total inventory costs.

$$\text{EOQ} = \sqrt{\frac{2 \cdot D \cdot Co}{Ch}}$$ $$\text{EOQ} = \sqrt{\frac{2 \times 5000 \text{ units} \times \text{N}2}{\text{N}5}}$$ $$\text{EOQ} = \sqrt{\frac{20000}{5}}$$ $$\text{EOQ} = \sqrt{4000}$$ $$\text{EOQ} \approx 63.245 \text{ units}$$

Rounding to the nearest whole unit, the reordering quantity is 63 units.

The re-ordering level is the point at which a new order should be placed to avoid stockouts.

$$\text{Re-ordering Level} = \text{Maximum Consumption Rate} \times \text{Maximum Lead Time}$$ $$\text{Re-ordering Level} = 20 \text{ units/day} \times 15 \text{ days}$$ $$\text{Re-ordering Level} = \boxed{\text{300 units}}$$

The minimum level is the lowest inventory level that should be maintained to cover unexpected delays or increased demand.

$$\text{Minimum Level} = \text{Re-ordering Level} - (\text{Average Consumption Rate} \times \text{Average Lead Time})$$ $$\text{Minimum Level} = 300 \text{ units} - (15 \text{ units/day} \times 10 \text{ days})$$ $$\text{Minimum Level} = 300 \text{ units} - 150 \text{ units}$$ $$\text{Minimum Level} = \boxed{\text{150 units}}$$

The maximum level is the highest inventory level that should be held at any time to avoid overstocking.

$$\text{Maximum Level} = \text{Re-ordering Level} + \text{EOQ} - (\text{Minimum Consumption Rate} \times \text{Minimum Lead Time})$$

Assuming minimum consumption rate is the average consumption rate (15 units/day) as no specific minimum is given:

$$\text{Maximum Level} = 300 \text{ units} + 63 \text{ units} - (15 \text{ units/day} \times 5 \text{ days})$$ $$\text{Maximum Level} = 363 \text{ units} - 75 \text{ units}$$ $$\text{Maximum Level} = \boxed{\text{288 units}}$$

The danger level is a critical point below the minimum level, indicating that emergency action is required to replenish stock.

$$\text{Danger Level} = \text{Average Consumption Rate} \times \text{Emergency Lead Time}$$ $$\text{Danger Level} = 15 \text{ units/day} \times 4 \text{ days}$$ $$\text{Danger Level} = \boxed{\text{60 units}}$$

1. b) What are the importance of determining maximum inventory level for a manufacturing company?

Determining the maximum inventory level is crucial for a manufacturing company to manage its resources effectively. It helps in cost control by preventing overstocking, which reduces carrying costs such as storage expenses, insurance, and the risk of obsolescence. It also optimizes working capital management by minimizing the amount of capital tied up in inventory, thereby freeing up funds for other operational needs.