Judith Thompson,the manager of the student center cafeteria,has added pizza to the menu.The pizza is ordered frozen from a local pizza establishment and baked at the cafeteria.Judith anticipates a weekly demand of 10 pizzas.The cafeteria is open 45 weeks a year,5 days a week.The ordering cost is $15 and the holding cost is $0.40 per pizza per year.The pizza vendor has a 4-day lead-time and Judith wants to maintain 1 pizza for safety stock.What is the optimal reorder point?
A)10
B)8
C)4
D)9
E)None of the above

Question

Quizplus · Accepted Answer

Step 1: Calculate the annual demand
Weekly demand = 10 pizzas
Days open per week = 5
Weekly demand x Days open per week = Daily demand
10 x 5 = 50 pizzas per week
Annual demand = Daily demand x Weeks open per year
50 x 45 = 2250 pizzas per year

Step 2: Calculate the ordering cost
Ordering cost = $15 per order

Step 3: Calculate the holding cost
Holding cost = $0.40 per pizza per year

Step 4: Calculate the lead time demand
Lead time = 4 days
Daily demand = 50 pizzas per day
Lead time demand = Daily demand x Lead time
50 x 4 = 200 pizzas

Step 5: Calculate the safety stock
Safety stock = 1 pizza

Step 6: Use the formula to calculate the reorder point
Reorder point = (Annual demand / 5) + Lead time demand + Safety stock
Reorder point = (2250 / 5) + 200 + 1
Reorder point = 451 + 200 + 1
Reorder point = 652

Therefore, the optimal reorder point is 652 pizzas. The best choice is D.

Judith Thompson,the Manager of the Student Center Cafeteria,has Added Pizza