CIPS Exam L4M7 Topic 6 Question 31 Discussion

Actual exam question for CIPS's L4M7 exam

Question #: 31
Topic #: 6

[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 Dyan at Apr 10, 2024, 04:14 AM

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Sue

4 months ago

No, I think it's B because safety stock is what you add to the average usage.

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Xochitl

5 months ago

I'm not sure, I thought it might be D) Average usage in a lead-time + Required level of safety stock.

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Marjory

5 months ago

I agree with it makes sense to multiply the safety stock with average usage.

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Sue

5 months ago

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

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Vilma

6 months ago

I'm pretty sure it's A) Average usage in a lead-time / Required level of safety stock, based on the explanation in the textbook.

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Chandra

6 months ago

I remember learning that the correct formula is C) Required level of safety stock -- Average usage in a lead-time.

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Maryanne

6 months ago

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

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Ellen

6 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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Rebecka

7 months ago

Haha, yeah Mirta, it's like they're trying to trick us with these basic concepts. But I agree, option B is the way to go.

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Mirta

7 months ago

Hey guys, does anyone else feel like they're back in inventory management 101? This is a classic question!

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Junita

7 months ago

Hmm, I was thinking option A might be correct, but now I'm not so sure. I need to double-check the formula to be sure.

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Victor

7 months ago

I was leaning towards option D at first, but now I see that it doesn't make sense. The re-order level should be the sum of the safety stock and the expected usage, not just the two added together.

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Ahmed

7 months ago

I agree with Brianne. Option B makes the most sense to me. The re-order level needs to account for both the safety stock and the expected usage during the lead-time.

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Cory

5 months ago

I see your point, Leonardo. But having the safety stock as a multiplier may be more accurate.

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Leonardo

5 months ago

I'm not sure about that. I think the formula is A) Average usage in a lead-time / Required level of safety stock.

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Tresa

5 months ago

I agree with you, Cory. It makes sense to multiply the safety stock with the average usage.

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Cory

6 months ago

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

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This is a pretty straightforward question, but I can see how it could trip people up if they're not familiar with the formula. I think option B is the correct answer - the re-order level is calculated by multiplying the required level of safety stock by the average usage in the lead-time.

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