Bendigo Deli sells 25 hams per week.Purchase-order lead time is 2 weeks and the economic-order quantity is 75 hams.What is the reorder point?

Question

Quizplus · Accepted Answer

Reorder Point = ((Average daily demand x Lead time in days) + Safety stock)
Average daily demand = 25/7 = 3.57
Lead time in days = 2 weeks x 7 days/week = 14 days
Safety stock = (Service level factor x Standard deviation of demand during lead time)
Assuming a service level factor of 95% and a standard deviation of weekly demand equal to the square root of the average weekly demand (sqrt(25)=5), we get:
Safety stock = 1.65 x (5 x sqrt(14)) = 19.7
Reorder Point = (3.57 x 14) + 19.7 = 70.98, which rounds up to 71 or 50 hams (assuming only whole units can be ordered). 
Since the economic-order quantity is 75 hams, it would make sense to order 75 hams when the inventory level reaches 50, so that the new stock arrives just in time to avoid stockouts. Therefore, the best choice is C (50 hams).

Bendigo Deli Sells 25 Hams Per Week