Scenario 9.5
Cranium,Inc. ,purchases term papers from an overseas supplier under a continuous review system.The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day.It costs $60 to process each order and there is a five-day lead-time.The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level.Cranium operates 200 days per year.A normal distribution table is appended to this exam.
-Use the information in Scenario 9.5.What is the reorder point R to satisfy a 98% cycle-service level?

Question

Quizplus · Accepted Answer

To calculate the reorder point R, we need to use the formula: R = d(L + lead time) + zσ(L+ lead time)^0.5, where d is the average demand per day, L is the lead time, σ is the standard deviation of demand per day, and z is the number of standard deviations corresponding to the desired service level (98% in this case).

Substituting the given values, we get: 
R = 300(5) + 2.33(30(5))^0.5 
R = 1500 + 64.46 
R = 1564.46

Therefore, the reorder point R to satisfy a 98% cycle-service level is greater than 1,600 units but less than or equal to 1,700 units. The best choice is C).

Scenario 9.5 Cranium,Inc. ,Purchases Term Papers from an Overseas Supplier Under a Under