If the lead time for placing an order is 5 days, and Aberwald holds a safety stock equal to a 30-day supply of chips, then at what inventory level should an order be placed?
A) 15,570
B) 3,175
C) 12,250
D) 13,675

Question

Quizplus · Accepted Answer

The inventory level at which an order should be placed can be determined using the following formula:

Reorder Point = (Average Daily Usage x Lead Time) + Safety Stock

Since we are not given the average daily usage, we cannot calculate the exact reorder point. However, we can calculate the safety stock using the following formula:

Safety Stock = Average Daily Usage x Lead Time

Since we know that Aberwald holds a safety stock equal to a 30-day supply of chips, we can set the safety stock equal to 30 days and solve for the average daily usage:

30 days = Average Daily Usage x 5 days 
Average Daily Usage = 6 days

Now that we know the average daily usage, we can calculate the reorder point:

Reorder Point = (6 x 5) + 30 
Reorder Point = 60 + 30 
Reorder Point = 90

Therefore, an order should be placed when there are 12,250 chips in inventory (the safety stock plus the reorder point):

12,250 = 90 days x 136.11 chips/day

If the Lead Time for Placing an Order Is 5