Inventory includes:

-stock of raw materials

-stock of work in progress

-stock of finished goods

-stock of spares

REORDERING LEVEL

MINIMUM/SAFETY LEVEL

MAXIMUM LEVEL

DANGER LEVEL

AVERAGE STOCK LEVEL

Firm should go for fresh purchase of requisition of material

REORDERING LEVEL Maximum Consumption X Maximum Reorder Period

Minimum amount of materials in hand to facilitate the flow of production process.

MINIMUM LEVEL Reorder level-(Normal level consumption X Normal Reorder period)

Firms holds maximum quantity of materials as stock during the process.

MAXIMUM LEVEL Reorder level+ Reorder Qty.

- (Minimum Consumption X Minimum

Reorder Period)

At this level, the firm should not further issue any materials to the various functional departments.

DANGER LEVEL Average Consumption X Maximum Reorder PeriodAverage Consumption=(Min. Consumption level+ Max.

Consumption level)/2

AVERAGE STOCK LEVEL

Minimum Stock level

+ ½ of the reorder

qty.

EOQ is the level at which both Ordering & Carrying costs are minimum.

Ordering costs per order decreases with an increase in no. of units in an order.

Carrying costs increases with an increase in no. of units in an order.

Record prepared by the storekeeper at the moment of Issuing and Receiving of materials.

Types1. Two Bin Card System2. Three Bin Card System

Two Bin Card System One bin card should be maintained for

reorder level & minimum level another for maximum stock level.

Three Bin Card System Incorporates the Lead time stock level in

addition to Maximum, Reorder and Minimum Level of the stock

Prepared by Costing Department of the firm.

It records the issues and receipts of materials at par with the Bin Card system

& also the value of materials.

ABC Analysis

VED Analysis

A- Always B- Better C- ControlA- High control for High value goodsB- Moderate control for Lesser value goodsC- Little control for Least value goods

V- Vital E- Essential D- Desirable- The spare parts are classified as above in

accordance to the criticality of production