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 daily demand is 50 and the lead time in days is 4, what is the reorder point?
A) 200
B) 220
C) 240
D) 260

Question

Quizplus · Accepted Answer

The reorder point is the expected demand during the lead time plus the safety stock. The expected demand during the lead time is 50 * 4 = 200 cases. The safety stock is the standard deviation of demand during the lead time times the z-score corresponding to the desired service level. The standard deviation of demand during the lead time is sqrt(50 * 4) = 10 cases. The z-score corresponding to a service level of 95% is 1.645. Therefore, the safety stock is 10 * 1.645 = 16.45 cases. The reorder point is therefore 200 + 16.45 = 216.45 cases, which rounds up to 220 cases.

The Manager of the Quick Stop Corner Convenience Store (Which