Maximum Stock Level Formula

Maximum Stock Level Formula

Maximum Stock Level may be calculated by the following formula

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

Example

Reorder level = 15,000

Reorder Quantity = 10,000

Minimum usage = 3000

Minimum lead time = 2 weeks

Solution

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

=15,000 + 10,000- (3000 x2)

=19,000

Maximum stock level defines the maximum limit for the entity. Stock involves holding cost and company cannot afford high holding cost. Therefore maximum stock level helps management to reduce its holding cost