Question

The materials manager for a billiard ball maker must periodically place orders for resin, one of the raw materials used in producing billiard balls. She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04 per day to carry a kilogram of resin in inventory. She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four days. If order size was 1,000 kilograms of resin, what would be the length of an order cycle?
A. 0.05 daysB. 4 daysC. 16 daysD. 20 daysE. 50 days

Answer 1

Answer:

D. 20 days

Explanation:

Daily usage rate: 50 kg each day

Order size: 1,000 kg

lead time: 4 days

Since the question just wants to know the length of an order cycle, all of the monetary information can be disregarded.

The company must maintain a stock, at the time of order, big enough to supply production during the lead time. Minimum stock should be:

$Min = 50\frac{kg}{day} * 4\ days\\Min = 200 \ kg$

Therefore, the company must reorder when stock reaches 200 kg. The length of the order cycle is the number of days for the company to reach minimum stock added to the order lead time:

$C = \frac{1000 - 200}{50} +4\ days\\C= 20\ days$