ACCA Management Accounting (F2) Certification Practice Exam

To determine the reorder level for the product, you need to calculate it based on the average daily usage and the lead time. The reorder level is the inventory level at which a new order should be placed to replenish stock before it runs out. It is calculated using the formula:

Reorder Level = Average Daily Usage × Lead Time

In this scenario, the average daily usage is 400 units and the lead time varies from 10 to 15 days.

To find the appropriate reorder level, we can use the average lead time for a more accurate estimate. The average lead time can be calculated as:

Average Lead Time = (10 days + 15 days) / 2 = 12.5 days

Now, applying the formula:

Reorder Level = 400 units/day × 12.5 days = 5,000 units

However, this calculation reflects only the average situation. The range of lead time suggests that you also need to consider the possibility of stock depletion before the delivery arrives. To be more conservative and cover the longer lead time, using the maximum lead time of 15 days will give a better reorder level:

Reorder Level = 400 units/day × 15 days = 6,000 units

This reflects