AAT Level 3 - Management Accounting Techniques - Inventory controls

KayEwen

I am working through some practice questions for inventory controls and I have come across a question that has confused me from the BPP question bank.

The calculations for inventory controls seem to be completely different to the FI course notes.

BPP provide the following calculations:
Reorder level = (average usage x Average lead time) + Inventory buffer
Minimum inventory reorder quantity = Average usage per day x Average lead time
Maximum inventory reorder quantity = Maximum inventory level - inventory buffer

But FI course notes says:
Reorder level = Maximum usage x Maximum lead time
Minimum inventory level = Reorder level - (Average usage x Average lead time)
Maximum inventory level = Reorder level - (minimum usage x Maximum lead time) + Reorder quantity


Can someone clarify which is correct? Because each calculation gives a different answer, and I want to make sure I'm learning the correct ones for the exam!

Thanks in advance

sjtoomer

The Kaplan formulas agree with the BPP formulas, as you have quoted, for those particular measures.

However, Minimum Inventory Re-Order Quantity is not the same as Minimum Inventory Level, and in the same way, Maximum Inventory Re-Order Quantity is not the same as Maximum Inventory Level, by definition; so, you are not comparing like-for-like measures.

Kaplan says:
Minimum Inventory Level (Inventory Buffer) = Re-Order Level - (Average Usage x Average Lead Time)
Maximum Inventory Level = Inventory Buffer + Maximum Re-Order Quantity
(The first being the same as the FI formula for that particular measure, the second not being quite the same as the FI formula for that particular measure, as you have quoted.)