If a store has annual demand 365 days per year)of 6,000 units and the lead time for it to receive an order from its supplier is 20 days,its EOQ reorder point is approximately
A)300 units
B)329 units
C)428 units
D)600 units

Question

Quizplus · Accepted Answer

EOQ = √[(2SD)/H]
where S = annual demand, D = cost to place an order, H = holding cost per unit per year

Assuming a cost of $10 per order and a holding cost of $1 per unit per year, we have:
D = $10
H = $1
S = 6000

EOQ = √[(2 x 6000 x $10)/$1] = 244.95

Reorder Point = (Lead time demand) + safety stock
Lead time demand = lead time x daily demand = 20 x (6000/365) = 328.77

Assuming a safety stock of one day's demand, we have:
Reorder Point = 328.77 + (6000/365) = 328.77 + 16.44 = 345.21

Rounding this up to the nearest unit, the EOQ reorder point is approximately 329 units, which corresponds to choice B.

If a Store Has Annual Demand 365 Days Per Year)of