Re-order level is calculated as:

Re-order level is calculated as:

• A. Maximum inventory level - buffer inventory
• B. Average usage x average lead time
• C. (Average usage x average lead time) + buffer inventory
• D. Average cost per unit x forecasted demand

Answer: (C)

Re-order level is the stock quantity at which you place a new order to avoid running out during the supplier lead time. It must cover the amount you expect to use while waiting for the new stock plus a cushion for variability. The expected consumption during lead time is calculated as average usage multiplied by average lead time. Adding buffer inventory provides safety stock to guard against fluctuations in demand or delays in delivery. So the correct formula is average usage × average lead time plus buffer inventory. Why the other ideas don’t fit: simply using average usage × average lead time misses the safety stock, which is essential to prevent stockouts. Using maximum inventory or subtracting buffer would not reflect the trigger point for replenishment. Using average cost per unit times forecasted demand mixes cost with stock levels and isn’t a stock-level measure.

Re-order level is the stock quantity at which you place a new order to avoid running out during the supplier lead time. It must cover the amount you expect to use while waiting for the new stock plus a cushion for variability. The expected consumption during lead time is calculated as average usage multiplied by average lead time. Adding buffer inventory provides safety stock to guard against fluctuations in demand or delays in delivery. So the correct formula is average usage × average lead time plus buffer inventory.

Why the other ideas don’t fit: simply using average usage × average lead time misses the safety stock, which is essential to prevent stockouts. Using maximum inventory or subtracting buffer would not reflect the trigger point for replenishment. Using average cost per unit times forecasted demand mixes cost with stock levels and isn’t a stock-level measure.