Question

Using a computerized Inventory Management System, a Paint Supply Store franchise continuously monitors the inventory of all the paint located at each of their 15 stores and their distribution warehouse. The Paint Supply Store franchise sells an average of 52 gallons of Yellow Paint every week (for 52 weeks per year). They purchase Yellow Paint from their supplier at a price of $3.00 per gallon. [The company does not hold Safety Stock]
It takes 1.75 weeks to receive an order from the supplier.
Administrative costs for Ordering paint have been estimated to be $25 per order.
Holding Costs = 30% of the purchase price per gallon per year.
At what inventory level should the company place an order?

A.2366 gallons of paint
B.54 gallons of paint
C.4732 gallons of paint
D.26 gallons of paint
E.91 gallons of paint

Answer 1

Answer:

The inventory level at which the company places an order = 91 gallons of paint

Explanation:

Per week, the average demand, d = 52 gallons

The Lead time, L = 1.75 weeks

The inventory level at which the company places an order = average demand * Lead time

= 52*1.75 = 91 gallons.

Therefore, the inventory level at which the company places an order = 91 gallons of paint.