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frosja888 [35]
4 years ago
15

Annual demand for an item is 11,000 units with the cost per unit at $250. The holding rate is 10% and the order cost is $14.00 p

er order. The standard deviation of daily demand is 3 units. Assume 260 days in the year and a lead-time of 2 days. If a service level of 97% is desired during the reorder interval, what is the reorder point? (Note: Due to rounding and your exact choice of z, your answer may be a few units off the choices given.)
Business
1 answer:
frutty [35]4 years ago
5 0

Answer:

93 units

Explanation:

Annual demand for an item = 11,000 units

cost per unit = $250

holding rate = 10%

Order cost = $14.00 per order

No. of days in a year = 260

Lead-time = 2 days

Average\ daily\ demand=\frac{Annual\ demand\ for\ an\ item}{No.\ of\ days\ in\ a\ year}

Average\ daily\ demand=\frac{11,000}{260}

                                              = 42.3 units

For a service level of 97%, the value of z is 1.881

Therefore,

Reorder point:

= Average daily demand × Lead time + Standard deviation of the daily demand × no. of standard deviation corresponding to service level probability × \sqrt{Lead\ time}

= (42.3 × 2) + (3 × 1.88 × \sqrt{2})

= 92.57

= 93 units

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