Question

The demand for an electronic component is normally distributed with an average daily demand of 500 units and a standard deviation of 50. The lead time for the component is 9 days. If a service level of 95% is desired then the company's reorder point for this component would be approximately Group of answer choices

Answer 1

Answer:

4,747

Explanation:

The computation of the reorder point is shown below:-

Reorder Point = Average Daily demand × Lead time + ( Service level × (Average lead time × standard deviation of demand^2 )^ 0.5

For service probability level of 95% is 1.64

= 500 × 9 + 1.64 × (9 × 50^2)^0.5

= 4,500 + 1.64 × 150

= 4,500 + 247

= 4,747

Therefore for computing the reorder point we simply applied the above formula.