Question

A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead-time for the item is six weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year. What is the reorder point level if the company has a policy of maintaining a 90% cycle-service level?a. less than or equal to 200 unitsb. greater than 200 but less than or equal to 300 unitsc. greater than 100 but less than or equal to 150 unitsd. greater than 300 but less than or equal to 400 units

Answer 1

Answer:

d. greater than 300 but less than or equal to 400 units

Explanation:

Given Weekly demand d = 50 units

Standard deviation \sigma = 20

Lead time L = 6 weeks

customer level = 90%

Z value at 90% customer service level is 1.28

Saftey stock =  Z\sigma\sqrt{L} = 1.28 * 20 \sqrt{6} = 62.70

Reorder point = Demand during lead time + safety stock

Demand during lead time = L*d = 6*50 = 300

Reorder point = 300 + 62.70 = 362.70