A company has average demand of 30 units per day. Lead time from the supplier averages 7 days. Assume that the combined standard deviation of demand during lead time has been calculated and is equal to 20 units. One unit costs $10 and the inventory carrying cost is 25 percent. What is the reorder point for the company if it decides on a 99 percent service level?
A)243 units
B)257 units
C)77 units
D)210 units

Question

A company has average demand of 30 units per day. Lead time from the supplier averages 7 days. Assume that the combined standard deviation of demand during lead time has been calculated and is equal to 20 units. One unit costs $10 and the inventory carrying cost is 25 percent.  What is the reorder point for the company if it decides on a 99 percent service level?
A)243 units 
B)257 units 
C)77 units 
D)210 units

Quizplus · Accepted Answer

(30 × 7) + (2.33 ×20) = 210 + 46.6 = 257 rounded.

A Company Has Average Demand of 30 Units Per Day