CIPS Exam L4M7 Topic 12 Question 38 Discussion

Actual exam question for CIPS's L4M7 exam

Question #: 38
Topic #: 12

[All L4M7 Questions]

Which of the following is the formula for calculating the re-order level?

AAverage usage in a lead-time / Required level of safety stock

BRequired level of safety stock x Average usage in a lead-time.

CRequired level of safety stock -- Average usage in a lead-time

DAverage usage in a lead-time + Required level of safety stock

Show Suggested Answer

Suggested Answer: D

In management accounting, reorder level (or reorder point) is the inventory level at which a com-pany would place a new order or start a new manufacturing run.

Reorder level depends on a company's work-order lead time and its demand during that time and whether the company maintain a safety stock.

If a company maintains a safety stock, reorder level calculation changes are follows:

Reorder Level = Average Demand Lead Time + Safety Stock

LO 2, AC 2.3

by Mitsue at Jun 29, 2024, 10:01 PM

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Sheron

7 months ago

Reorder level? More like 'reorder anxiety level' amirite? *nervous laughter*

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Marylou

6 months ago

Haha, I feel you! It can be stressful trying to get that reorder level just right.

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Marylou

6 months ago

B) Required level of safety stock x Average usage in a lead-time.

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Marylou

6 months ago

A) Average usage in a lead-time / Required level of safety stock

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Chantell

7 months ago

This is a classic trick question! The answer is obviously B, because you need to account for both the safety stock and the usage to determine the re-order point.

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Renato

7 months ago

Hmm, I'm torn between B and D. Maybe I should have paid more attention in my inventory management class...

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Ozell

6 months ago

Let's double check the formula to be sure.

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Judy

6 months ago

Are you sure? I remember learning that it's B.

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Dottie

7 months ago

No, I believe it's D) Average usage in a lead-time + Required level of safety stock.

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Rosalind

7 months ago

I think the formula is B) Required level of safety stock x Average usage in a lead-time.

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Alison

7 months ago

C can't be right, you wouldn't subtract the usage from the safety stock to get the re-order level. B looks like the winner to me.

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Kris

6 months ago

Definitely, that's the most logical way to calculate the re-order level.

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Kaycee

6 months ago

I agree, it makes sense to multiply the required safety stock by the average usage in a lead-time.

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Xochitl

6 months ago

I think B is the correct formula for calculating the re-order level.

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Yolande

6 months ago

Yeah, C doesn't make sense. B is the most logical option for determining the re-order level.

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Renato

6 months ago

I agree, B seems to be the right formula for calculating the re-order level.

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Royal

6 months ago

I think B is correct, you multiply the safety stock by the average usage in a lead-time to get the re-order level.

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Ryann

7 months ago

I'm not sure, but I think C) Required level of safety stock -- Average usage in a lead-time doesn't make sense.

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Brendan

7 months ago

I remember learning that it is actually A) Average usage in a lead-time / Required level of safety stock.

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Ernest

8 months ago

I think D is the correct answer. The re-order level should be the sum of the average usage and the safety stock level.

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Desmond

6 months ago

No problem! It's always good to double check the formulas for inventory management.

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Twana

7 months ago

Oh, I see. Thanks for clarifying that. I thought it was D.

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Denny

7 months ago

Actually, the formula for calculating the re-order level is B) Required level of safety stock x Average usage in a lead-time.

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Katy

7 months ago

I think D is the correct answer. The re-order level should be the sum of the average usage and the safety stock level.

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Daniel

8 months ago

I disagree, I believe it is D) Average usage in a lead-time + Required level of safety stock.

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Leota

8 months ago

I think the formula for calculating the re-order level is B) Required level of safety stock x Average usage in a lead-time.

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Ollie

8 months ago

Option B makes the most sense to me. The re-order level should be the required safety stock multiplied by the average usage during the lead-time.

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Joni

8 months ago

Yes, it's important to multiply the required safety stock by the average usage in the lead-time.

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Jolene

8 months ago

I agree, option B seems like the correct formula.

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