Home For AAT student members AQ 2016 Advanced Diploma in Accounting Management Accounting: Costing

Inventory control - Reorder levels and buffer inventory

Natalie_SamNatalie_Sam Registered, AAT Student Posts: 2
Hi, I just wondered if anyone knows why the equations given for the reorder quanity / buffer inventory is different in Osborne and Kaplan books?

Kaplan and Osborne both give the re-order level as max usage x max lead time which makes sense.

Kaplan defines buffer inventory = re-order level - (average usage x average leaad time). Again the same as Osborne and makes sense.

Kaplan then goes on to say that re-order level = buffer + (max usage x max lead time) (which makes no sense because this cannot be true if the last equation is also true!)

whereas Osborne says re-order level = buffer + (average usage x average lead time) (which makes much more sense as it is just the buffer inventory equation rearranged.

Any idea if AAT will accept both answers in the exam!? I have my exam in 2 days time and I am rather worried about this.

Thanks!

Comments

  • petxarpetxar Registered Posts: 2
    Hey there,

    I was actually quite confused at first when I saw your query, but fingers crossed the below should be the answer you're looking for, otherwise please accept my apologies in advance!

    So in terms of the following equation:

    > Re-order level = Buffer + (max usage x max lead time) ---> I believe this applies more or less to specific businesses that deal with stock on a much more regular basis/ are much more dependent on having the correct quantity of stock holdings. What I think this equation is getting at is the fact that there needs to be regular monitoring/ procedures in place to be able to calculate the 'Max' number of stock a business needs to have in order to sufficiently reduce the risk against potential stockouts.

    > Re-order level = Buffer + (average usage x average lead time) ---> I believe this equation is driving more towards the actual 're-order'/ lead time point and the point in which a business will be able to ascertain when it should initiate a re-ordering of goods.

    I checked out this link here, so I'd probably have a read as I think it has some useful bits in it, despite it being a US-based explanation.

    Best of luck.
  • Natalie_SamNatalie_Sam Registered, AAT Student Posts: 2
    Thank you! I just picked up your message yesterday and that helped, thank you. Exam is now complete and I passed.
    Natalie
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