Kushie's Coffee in Bangalore is a quaint establishment nestled near MG Road in the central business district. It serves coffee and fruit cake to a clientele that has been enjoying these products for over fifty years. The demand for coffee beans is 6600 cases per year (each case has 24 ten-pound bags). It would be disastrous for them to run out of coffee, so they keep a safety stock of 30 cases. The cases cost $4800 and it costs $5 per case to order coffee. As coffee is a perishable product, the holding cost is fairly high at $40/case/year. The lead time to receive an order is seven days. Kushie's is open 300 days a year.
-What is their reorder point if they order at twice their EOQ?
A) 46 cases
B) 92 cases
C) 184 cases
D) 368 cases

Question

Quizplus · Accepted Answer

The reorder point formula is $ROP = d \times L$, where $d$ is the daily demand and $L$ is the lead time. The daily demand is $6600 \text{ cases/year} \div 300 \text{ days/year} = 22 \text{ cases/day}$. The lead time is 7 days, so $ROP = 22 \text{ cases/day} \times 7 \text{ days} = 154 \text{ cases}$. Adding the safety stock of 30 cases gives a total of $154 + 30 = 184$ cases.

Kushie's Coffee in Bangalore Is a Quaint Establishment Nestled near MG