Table $5.3$
The Medfield Import Autoparts Company imports and sells standard air filters for most Japanese cars, and it operates under the continuous review system. The average demand for this item is 1200 units per month ( 14,400 per year), and the standard deviation in monthly demand is 250 units. It costs the company $\$ 225$ to process each order, and the lead time is 2 months. The holding cost for one unit is $\$ 0.50$ per year, and the company policy is to maintain a 95 percent cycle- service level. You will need to refer to a normal table to answer the question(s).
-Use the information in Table 5.3. What is the reorder point R to satisfy a 95 percent cycle- service level?
A) less than or equal to 2800 units
B) greater than 2800 units but less than or equal to 2900 units
C) greater than 2900 units but less than or equal to 3000 units
D) greater than 3000 units

Question

Quizplus · Accepted Answer

The reorder point $ R $ is calculated using the formula: $ R = \text{average demand during lead time} + z \times \text{standard deviation of demand during lead time} $. The average demand during the lead time of 2 months is $ 2 \times 1200 = 2400 $ units. The standard deviation during the lead time is $ \sqrt{2} \times 250 \approx 353.55 $. For a 95% service level, $ z \approx 1.645 $. Thus, $ R = 2400 + 1.645 \times 353.55 \approx 2981 $ units, which falls in the range of greater than 2900 units but less than or equal to 3000 units.

Table 5.35.35.3 The Medfield Import Autoparts Company Imports and Sells Standard Air

Table $5.3$ The Medfield Import Autoparts Company Imports and Sells Standard Air