Using the fixed-time-period inventory model, and given an average daily demand of 200 units, 4 days between inventory reviews, 5 days for lead time, 120 units of inventory on hand, a z of 1.96, and a standard deviation of demand over the review and lead time of 3 units, which of the following is the order quantity?
A) About 1,086
B) About 1,686
C) About 1,806
D) About 2,206
E) About 2,686

Question

Quizplus · Accepted Answer

First we need to calculate the maximum amount of units sold during the review and lead time period. This can be done by multiplying the average daily demand by the number of days between inventory reviews and adding the lead time demand:

(200 units/day) x (4 days) + (200 units/day) x (5 days) = 1800 units

Next, we need to calculate the safety stock, which is the inventory buffer needed to account for demand variation during the review and lead time period. This can be calculated by multiplying the standard deviation by the z-value:

3 units x 1.96 = 5.88 units

We then add the safety stock to the maximum amount sold during the review and lead time period:

1800 units + 5.88 units = 1805.88 units

Finally, we subtract the current inventory on hand from the total inventory needed to get the order quantity:

1805.88 units - 120 units = 1685.88 units

Therefore, the order quantity is about 1,686 units, which is option B.

Using the Fixed-Time-Period Inventory Model, and Given an Average Daily