Scenario 9.9
Demand = 5,200 units/year
Standard deviation of weekly demand = 11 units
Ordering costs = $45/order
Holding costs = $2/unit/year
Cycle-service level = 90% (z for 90% = 1.28)
Lead-time = 3 weeks
Number of weeks per year = 52 weeks
-Use the information in Scenario 9.9.If a firm uses the continuous review system to control the inventory,what would be the reorder point?
A)0 units
B)greater than 0 but less than or equal to 300 units
C)greater than 300 but less than or equal to 600 units
D)greater than 600 units

Question

Quizplus · Accepted Answer

Reorder Point = Average Demand during lead time + Safety Stock
Average Demand during lead time = Demand per week * Lead time = (5200/52) * 3 = 300 units
Safety Stock = z * standard deviation of weekly demand * square root of lead time = 1.28 * 11 * sqrt(3) = 23.64 ~ 24 units
Reorder Point = 300 + 24 = 324 units
Therefore, the reorder point is greater than 300 but less than or equal to 600 units. Hence, the best choice is option C.

Scenario 9.9 Demand = 5,200 Units/year