Danger Level of Materials or Inventory Stock:
Definition and Explanation:
Some enterprise
also calculate danger level. When this level
of stock is reached, then emergency steps are taken
by the management to acquire material supplies.
When danger level
is reached, the try is made to purchase materials
from the nearest possible source or place so that
the workers and plant and machinery may not remain
idle due to shortage of materials supplies.
Formula:
Danger level
can be calculated by the help of the following
formula or equation:
Danger
level = Average daily requirement × Time required to
get
emergency supply
Example:
|
Normal usage
or average requirement |
700 units per
day |
|
Maximum usage |
800 units per
day |
|
Minimum usage |
600 units per
day |
|
Re-order
period |
25 to 30 days |
|
Time required
to receive emergency supplies |
4 Days |
Calculate danger level.
Calculation:
|
Danger
level = Average daily requirement ×
Time required to get emergency
supply
= 700
× 4
=
2,800 units |
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