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.Currently, the purchase cost is $40 per unit.There are 250 working days per year.Whenever an order is placed, it is known that the entire order will arrive on a truck in 6 days.Currently, the company is ordering 500 units each time an order is placed.What should be the reorder point (excluding any safety stock)under the current policy?
A)48
B)100
C)6
D)24

Question

Quizplus · Accepted Answer

The reorder point is the point at which an order should be placed to avoid stockouts. It is calculated as the average daily demand multiplied by the lead time. In this case, the average daily demand is 2,000 units / 250 days = 8 units. The lead time is 6 days. Therefore, the reorder point is 8 units * 6 days = 48 units.

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