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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17 days 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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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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