The annual demand for a product is 1,000 units.The company orders 200 units each time an order is placed.The lead-time is 6 days,and the company has determined that 20 units should be held as a safety stock.There are 250 working days per year.What is the reorder point?
A)20
B)24
C)44
D)120
E)None of the above

Question

Quizplus · Accepted Answer

First, we need to calculate the economic order quantity (EOQ).
EOQ = sqrt((2 x annual demand x ordering cost)/holding cost per unit)
Ordering cost = 0 (since it is not given in the question)
Holding cost per unit = (cost of holding one unit per year) / (unit cost) = 20/1 = 20
EOQ = sqrt((2 x 1000 x 0)/20) = 0
Since the EOQ is zero, it means we need to reorder every time the inventory level reaches zero. Thus, the reorder point would be equal to the sum of the lead time demand and the safety stock.
Lead time demand = daily demand x lead time = (1000/250) x 6 = 24
Reorder point = lead time demand + safety stock = 24 + 20 = 44
Therefore, the reorder point is 44, which corresponds to choice (C).

The Annual Demand for a Product Is 1,000 Units