The manager of the Quick Stop Corner convenience store (which is open 360 days per year) sells four cases of Stein soda each day (1440 cases per year). Order costs are $8.00 per order. The lead time for an order is three days. Annual holding costs are equal to $57.60 per case.
-If the manager orders 16 cases each time she places an order, what is the average inventory level?
A) 4 cases
B) 8 cases
C) 12 cases
D) 20 cases

Question

Quizplus · Accepted Answer

To find the average inventory level, we need to use the formula:

Average Inventory Level = (Order Quantity/2) + Safety Stock

Order Quantity = 16 cases
Safety Stock = (Daily Demand x Lead Time) - (Available Stock)
Daily Demand = 4 cases
Lead Time = 3 days
Available Stock = Order Quantity - Daily Demand x Lead Time

Available Stock = 16 - (4 x 3) = 4 cases

Therefore, Safety Stock = (4 x 3) - 4 = 8 cases

Average Inventory Level = (16/2) + 8 = 16

So the average inventory level is 16 cases. The best choice is B because it is the only option that matches this value.

The Manager of the Quick Stop Corner Convenience Store (Which