The materials manager for a billiard ball maker must periodically place orders for resin, one of the raw materials used in producing billiard balls. She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $0.04 per day to carry a kilogram of resin in inventory. She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four days. At what point should resin be reordered?
A)0 kilograms remaining
B)50 kilograms remaining
C)200 kilograms remaining
D)400 kilograms remaining
E)500 kilograms remaining

Question

Quizplus · Accepted Answer

The optimal reorder point is when the carrying cost equals the ordering cost. The carrying cost is $0.04 per day per kilogram, and the ordering cost is $100 per order. The lead time is four days, so the optimal reorder point is when there are four days' worth of resin left in inventory, or 200 kilograms.

The Materials Manager for a Billiard Ball Maker Must Periodically