The annual demand for a product has been projected at 2,000 units.This demand is assumed to be constant throughout the year.The ordering cost is $20 per order, and the holding cost is 20 percent of the purchase cost.The purchase cost is $40 per unit.There are 250 working days per year.Currently, the company is ordering 500 units each time an order is placed.Assuming the company uses a safety stock of 20 units resulting in a reorder point of 60 units, what is the expected lead-time for delivery?
A)4 days
B)5 days
C)6 days
D)7 days

Question

Quizplus · Accepted Answer

The reorder point formula is R = d*L + SS, where R is the reorder point, d is the daily demand, L is the lead time in days, and SS is the safety stock. Given the annual demand of 2,000 units and 250 working days, the daily demand (d) is 2000/250 = 8 units/day. With a reorder point (R) of 60 units and a safety stock (SS) of 20 units, we can rearrange the formula to solve for L: L = (R - SS) / d = (60 - 20) / 8 = 40 / 8 = 5 days.

The Annual Demand for a Product Has Been Projected at 2,000