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.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 level of safety stock would give a reorder point of 60 units?
A)10
B)14
C)18
D)12

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. Here, R = 60 units, d = 2000 units/250 days = 8 units/day, and L = 6 days. Plugging into the formula 60 = 8*6 + SS gives SS = 12 units.

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