Scenario 9.8
Peterson Enterprises uses a continuous review inventory control system.The firm operates 50 weeks per year and has the following characteristics for an item:
Demand = 50,000 units/year
Ordering cost = $35/order
Holding cost = $2/unit/year
Lead-time = 3 weeks
Standard deviation in weekly demand = 125 units
A normal distribution table is appended to this exam.
-Use the information in Scenario 9.8.If Peterson wishes to provide a 90% cycle-service level,what is the reorder point?
A)less than or equal to 2,700 units
B)greater than 2,700 but fewer than or equal to 3,100 units
C)greater than 3,100 but fewer than or equal to 3,500 units
D)greater than 3,500 units

Question

Quizplus · Accepted Answer

To calculate the reorder point, we need to consider the average demand during lead time and safety stock.
Average demand during lead time: 
= demand per week x lead time 
= 50,000 units/year ÷ 50 weeks/year x 3 weeks = 3,000 units
Safety stock: 
= z-score x standard deviation in weekly demand x square root of lead time 
= 1.28 x 125 units x √3 = 214 units (using the normal distribution table)
Reorder point: 
= average demand during lead time + safety stock 
= 3,000 units + 214 units = 3,214 units
Thus, the reorder point is greater than 3,100 but fewer than or equal to 3,500 units, which is option C.

Scenario 9.8 Peterson Enterprises Uses a Continuous Review Inventory Control System.The Firm