Question

The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year. If the lead time is 5 days and no safety stock is used, what is the reorder point for the XO-01 assembly.

Answer 1

Answer:

160

Explanation:

Reorder point is the inventory level at which new order are placed to prevent a down time due to stock out and and holding cost are also at the minimal level .

Workings

Annual demand = 8000

Ordering cost = $50

Holding cost = $20

Operating days = 250

Lead time =5 days

Re order point = Average daily usage * Average lead time

Average daily usage = 8000/250 = 32

Reorder point = 32*5 =160