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?

Here is the solution for Question One (1): QUESTION ONE (1) 1. a) Calculate the following inventory levels: First, we need to calculate the Economic Order Quantity (EOQ) as the reordering quantity, based on the provided cost information. Annual Demand (D) = 5,000 units Cost of placing a purchase order (Co) = N2 Annual cost of storage per unit (Ch) = N5 Average Consumption Rate = 15 units per day Maximum Consumption Rate = 20 units per day Average Lead Time = 10 days Maximum Lead Time = 15 days Minimum Lead Time = 5 days Emergency Lead Time = 4 days Step 1: Calculate Economic Order Quantity (EOQ). The EOQ is the optimal reordering quantity that minimizes total inventory costs. EOQ = sqrt((2 · D · Co)/(Ch)) EOQ = sqrt(2 × 5000 units) × N2N5 EOQ = sqrt((20000)/(5)) EOQ = sqrt(4000) EOQ ≈ 63.245 units Rounding to the nearest whole unit, the reordering quantity is 63 units. Step 2: Calculate Re-ordering Level (ROL). The re-ordering level is the point at which a new order should be placed to avoid stockouts. Re-ordering Level = Maximum Consumption Rate × Maximum Lead Time Re-ordering Level = 20 units/day × 15 days Re-ordering Level = 300 units Step 3: Calculate Minimum Level. The minimum level is the lowest inventory level that should be maintained to cover unexpected delays or increased demand. Minimum Level = Re-ordering Level - (Average Consumption Rate × Average Lead Time) Minimum Level = 300 units - (15 units/day × 10 days) Minimum Level = 300 units - 150 units Minimum Level = 150 units Step 4: Calculate Maximum Level. The maximum level is the highest inventory level that should be held at any time to avoid overstocking. Maximum Level = Re-ordering Level + EOQ - (Minimum Consumption Rate × Minimum Lead Time) Assuming minimum consumption rate is the average consumption rate (15 units/day) as no specific minimum is given: Maximum Level = 300 units + 63 units - (15 units/day × 5 days) Maximum Level = 363 units - 75 units Maximum Level = 288 units Step 5: Calculate Danger Level. The danger level is a critical point below the minimum level, indicating that emergency action is required to replenish stock. Danger Level = Average Consumption Rate × Emergency Lead Time Danger Level = 15 units/day × 4 days Danger Level = 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. 3 done, 2 left today. You're making progress.