The Wonderful Hair Salon buys lots of shampoos. Wonderful follows the exponential-smoothing forecasting method, and based on their forecast calculations, annual demand is 750 units. Wonderful normally pays $3.00 per shampoo bottle when ordering from its supplier. Each order that is placed with the supplier costs $18 to process. Wonderful's holding cost for shampoos is 15% of the cost of the shampoo bottle per year.
-Susan's Eatery makes and delivers pad thai for lunch to residential customers and wants to know the reorder point for the custom-made lunch boxes, given the following information: Average daily demand is 100 pad thai lunches, with a daily standard deviation of 17 lunches. The lead time for lunch box purchases is 4 days, with a lead time standard deviation of 2 days. Susan's Eatery wants a 98% service level. Calculate the reorder point.

Question

Quizplus · Accepted Answer

The correct answer is A.The reorder point is calculated as:Reorder point = Average daily demand * Lead time + Safety stockSafety stock = z * sqrt(Average daily demand * Lead time * (Lead time standard deviation^2 + Daily standard deviation^2))z = 2.326 for a 98% service levelAverage daily demand = 100 lunchesLead time = 4 daysLead time standard deviation = 2 daysDaily standard deviation = 17 lunchesPlugging these values into the formula, we get:Reorder point = 100 * 4 + 2.326 * sqrt(100 * 4 * (2^2 + 17^2))Reorder point = 400 + 2.326 * sqrt(100 * 4 * 293)Reorder point = 400 + 2.326 * sqrt(117200)Reorder point = 400 + 2.326 * 342.26Reorder point = 400 + 798.04Reorder point = 816.04Therefore, the reorder point is 816.

The Wonderful Hair Salon Buys Lots of Shampoos