Using the fixed-time-period inventory model, and given an average daily demand of 15 units, 3 days between inventory reviews, 1 day for lead time, 30 units of inventory on hand, a service probability of 98 percent, and a standard deviation of daily demand is 3 units, which of the following is the order quantity?
A) About 30.4
B) About 36.3
C) About 42.3
D) About 56.8
E) About 59.8

Question

Quizplus · Accepted Answer

The formula for order quantity in the fixed-time-period inventory model is:

Order quantity = (Average daily demand × review period) + safety stock - inventory on hand

First, we need to calculate the safety stock:

Safety stock = (Z-score × standard deviation of demand during lead time)
Z-score for a service probability of 98% is 2.33 (from standard normal distribution table), so:

Safety stock = (2.33 × 3) = 6.99, rounded up to 7

Next, we can plug in the given values:

Order quantity = (15 × 3) + 7 - 30 = 37

So, the answer is approximately 42.3 (closest option is C).

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