Southwestern Supply Company has an economic order quantity for item A of 200 units. The annual demand for the product is 5,000 units, and the cost of placing an order is $8. If the company operates 200 days a year and the lead time for the item is five days, what is the reorder point if a safety stock of 50 units is maintained?
A)4 days
B)50 units
C)25 units
D)175 units

Question

Quizplus · Accepted Answer

The formula for calculating the reorder point is:

Reorder point = (Demand during lead time) + Safety stock

First, we need to calculate the demand during lead time. The lead time for item A is five days and the daily demand is:

Daily demand = Annual demand ÷ Number of working days per year
Daily demand = 5,000 ÷ 200
Daily demand = 25 units

So, the demand during lead time is:

Demand during lead time = Daily demand × Lead time
Demand during lead time = 25 × 5
Demand during lead time = 125 units

Now, we add the safety stock to get the reorder point:

Reorder point = Demand during lead time + Safety stock
Reorder point = 125 + 50
Reorder point = 175 units

Therefore, the best choice is D, 175 units.

Southwestern Supply Company Has an Economic Order Quantity for Item