A company wants to determine its reorder point (R). Demand is variable and the company wants to build a safety stock into R. If the average daily demand is 12, the lead time is 5 days, the desired z value is 1.96, and the standard deviation of usage during lead time is 3, which of the following is the desired value of R?
A) About 6
B) About 16
C) About 61
D) About 66
E) About 79

Question

Quizplus · Accepted Answer

The reorder point (R) can be calculated using the formula: R = (Average daily demand * Lead time) + (Z value * Standard deviation of usage during lead time). Plugging in the given values: R = (12 * 5) + (1.96 * 3) = 60 + 5.88 ≈ 66. Therefore, the desired value of R is about 66.

A Company Wants to Determine Its Reorder Point (R)