Danger Level of Materials or Inventory Stock

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

You may also be interested in other articles from “materials and inventory cost control” chapter.

  1. Need for Materials Control
  2. Requirements of a System of Materials control
  3. Stock Control
  4. Ordering Level or Ordering Point or Re-order Level
  5. Minimum Level or Minimum Limit
  6. Maximum Level or Maximum Limit
  7. Danger Level
  8. Economic Order Quantity EOQ


Leave a Reply

Your email address will not be published.