Figure 20 - 1 Jan's Candle Company manufactures candles.The company buys wax in 100-pound containers that cost $15 each.The company uses 20,000 containers per year, and usage occurs evenly throughout the year.The average cost to carry a 100-pound container in inventory per year is $2, and the cost to place an order is $10.The company works 250 days per year.
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Refer to Figure 20-1.The lead time is four working days, the average rate of usage is 80 containers per day, and the company carries a safety stock of 20 containers.What is the reorder point?
A) 360 containers
B) 340 containers
C) 320 containers
D) 300 containers

Question

Quizplus · Accepted Answer

To calculate the reorder point, we need to find out the demand during the lead time and add the safety stock to it.

Demand during the lead time = Average daily usage × lead time
                            = 80 × 4
                            = 320 containers
                            
Reorder point = Demand during the lead time + Safety stock
                     = 320 + 20
                     = 340 containers
 
Therefore, the reorder point is 340 containers. Option B is the correct choice.

Figure 20 - 1 Jan's Candle Company Manufactures Candles