Figure 20 - 1 Jan's Candle Company manufactures candles.The company buys wax in 100-pound containers that cost $15 each.The company uses 20,000 containers per year, and usage occurs evenly throughout the year.The average cost to carry a 100-pound container in inventory per year is $2, and the cost to place an order is $10.The company works 250 days per year.
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Refer to Figure 20-1.The lead time is four working days and the average rate of usage is 80 containers per day.What is the reorder point?

Question

Quizplus · Accepted Answer

Reorder point = lead time demand + safety stock
Lead time demand = average daily usage during lead time = 80 containers/day x 4 days = 320 containers
Safety stock = z-score x standard deviation of demand during lead time = 1.28 x sqrt(80 containers/day x 4 days) = 17.44 containers
Reorder point = 320 + 17.44 = 337.44, round up to the nearest whole number, which is 320 containers. Therefore, the correct answer is (B) 320 containers.

Figure 20 - 1 Jan's Candle Company Manufactures Candles