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Inventory Formula

This document outlines 14 formulas for calculating key inventory metrics. These include formulas to calculate economic order quantity, ordering cost, carrying cost, total inventory cost, minimum stock level, re-order level, maximum stock level, average stock level, safety stock, buffer stock, reserve stock, danger level, inventory turnover ratio, and inventory turnover period. The document provides the formulas to help managers analyze and optimize inventory levels.

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Rohit Makwana
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2K views2 pages

Inventory Formula

This document outlines 14 formulas for calculating key inventory metrics. These include formulas to calculate economic order quantity, ordering cost, carrying cost, total inventory cost, minimum stock level, re-order level, maximum stock level, average stock level, safety stock, buffer stock, reserve stock, danger level, inventory turnover ratio, and inventory turnover period. The document provides the formulas to help managers analyze and optimize inventory levels.

Uploaded by

Rohit Makwana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Formulas for Inventory

1) EOQ = Square root of: (2AO/C)

2) Ordering Cost : Annual Demand / EOQ

3) Carrying cost : (EOQ/2) × Carrying cost per unit

4) Total Inventory Cost : Purchase Cost + Ordering Cost + Carrying Cost

5) Minimum Stock Level : Re-order level – (Average lead time × Average


consumption)

6) Re-order Level : (Normal Usage ×Average Delivery Time) +


Minimum Stock Level
OR

Maximum Re-order period × Maximum consumption


OR
Safety Stock + Lead Time Consumption

7) Maximum Stock Level : Re-order level + Re-order quantity –


(Minimum consumption × Minimum re-order period)

8) Average Stock Level :


(Maximum Stock Level + Minimum Stock Level )/2
OR
Minimum Stock Level + ((Re-order Quantity)/2)

9) Safety Stock : (Annual Demand/365 ) × (Maximum lead time –


Average lead time) (Usage at Normal rate during extention of lead
time)

10) Buffer Stock : Average lead time × Average consumption

11)Reserve Stock : Average lead time × (Maximum Usage – Normal Usage) ( To


meet excess usage during normal lead time)

12)Danger Level : Minimum Consumption × Emergency Delivery Time


13)Inventory Turnover Ratio : (Material Consumed/Average Inventory)

14)Inventory Turnover Period :( 365 / Inventory Turnover Ratio)

Compiled :
Samkit Dhruva

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