A company currently has no items in inventory. The demand for the next four months is 200, 400, 250, and 350 units. Assuming a level production rate of 250 units per month, determine the months in which backorders or stockouts will materialize.
A) Only in month 1
B) In months 2 and 4
C) In months 2, 3, and 4
D) In months 2 and 3

Question

Quizplus · Accepted Answer

The company has no inventory at the beginning. Hence, it starts producing 250 units in month 1, and it can only fulfill 200 units of demand. Therefore, it will face a backorder of 50 units in month 1.
In month 2, there are 450 units of cumulative demand (200+400-250), and the company can only produce 250 units, resulting in a backorder of 200 units.
In month 3, there are 450 units of cumulative demand (200+400-250), and the company can only produce 250 units, resulting in a backorder of 200 units.
In month 4, there are 550 units of cumulative demand (200+400+250-350), and the company can only produce 250 units, resulting in a backorder of 300 units.
Therefore, the backorders will materialize in months 1, 2, 3, and 4, leading to a stockout in months 2, 3, and 4.

A Company Currently Has No Items in Inventory