Maximum Stock Level Formula

Maximum Stock Level Formula

Maximum Stock Level formula is given below. This formula has been explained with an example.

Maximum Stock level = Reorder level + reorder Quantity- (Minimum usage x Minimum lead time)

Maximum Stock Level Formula Example

Reorder level of Inventory = 20,000

Reorder Quantity (EOQ) = 15,000

Minimum usage of inventory = 5000

Minimum lead time for arrival = 2 weeks

Solution

Maximum level = Reorder level + reorder Quantity- (minimum usage x minimum lead time)

=20,000 + 15,000- (5000 x2)

=35,000-10000

=15,000

 Significance of Maximum Stock Level Calculation

Holding of stock or inventory is not free; rather holding of stock requires reasonable amount of expenditure or cost. Maximum stock level is calculated for reducing holding cost of the company. Any Stock above maximum stock level is not recommended.

Reasons of Stock level above the maximum Stock level

One of the main reasons is low consumption of stock that has resulted in piling up of stock. Therefore stock level may be controlled either by reducing re order quantity or reducing the re order level.

Important factor for Maximum Stock Level Determination

Important factor for determining the maximum stock level includes the storing or holding cost, space availability, seasonal stock consumption fluctuation etc. Therefore stock level formula just provides a general guidance, therefore management decide the actual stock level on the bases above mentioned factors.

Maximum Stock Level Practice Question

Reorder level of Inventory = 30,000

Reorder Quantity (EOQ) = 6,000

Minimum usage of inventory = 4,000

Minimum lead time for arrival = 3 weeks

Calculate Maximum Stock Level?

Average Stock Level Formula
Maximum Stock Level Formula
Minimum Stock Level formula 

Re Order Level Formula