Artwright Graphics uses a special-purpose paper in 80 per cent of its jobs. The paper is purchased in l00-sheet packages at a cost of $100 per package. Management estimates the cost of placing and receiving a typical order to be $15 and the annual cost of carrying a package in inventory is $1.50. The firm uses 2600 packages each year and production is constant all year. The lead time to receive an order is one week. No safety stock is kept. The reorder point for the paper is:

Question

Quizplus · Accepted Answer

The reorder point is calculated based on the lead time demand. Since the firm uses 2600 packages per year and there are 52 weeks in a year, the weekly usage rate is 2600 / 52 = 50 packages. With a lead time of one week and no safety stock, the reorder point is exactly the weekly usage rate, which is 50 packages.

Artwright Graphics Uses a Special-Purpose Paper in 80 Per Cent