Gartner Manufacturing Inc. purchases a component from a Malaysian supplier. The demand for that component is exactly 70 units each day. The company is open for business 250 days each year. When the company reorders the product, the lead time from the supplier is exactly 10 days. The product costs $14.00. The company determined that its inventory carrying cost is 20%. The company's order cost is $30.00.
-Calculate the reorder point.

Question

Quizplus · Accepted Answer

The reorder point is the inventory level at which a new order should be placed. It is calculated as the sum of the average daily demand during the lead time and the safety stock. The average daily demand is 70 units / 250 days = 0.28 units. The safety stock is the amount of inventory that is held to protect against unexpected increases in demand or delays in delivery. It is typically set at a level that is equal to the average daily demand during the lead time. In this case, the safety stock is 0.28 units * 10 days = 2.8 units. The reorder point is therefore 0.28 units + 2.8 units = 3.08 units. The closest answer choice is 479 units, which is the correct answer.