Question

The annual demand for a product has been projected at 2000 units. This demand is assumed to be constant throughout the year. The ordering cost is $20 per order, and the holding cost is 20 percent of the purchase cost. The purchase cost is $40 per unit. There are 250 working days per year. Whenever an order is placed, it is known that the entire order will arrive on a truck in 6 days. Currently, the company is ordering 500 units each time an order is placed. What level of safety stock would give a reorder point of 60 units? A. 12 B. 18 C. 10 D. 14

Answer 1

Answer: 12

Explanation:

The level of safety stock that would give a reorder point of 60 units goes thus:

Firstly, we should note that the formula that'll be used in calculating the reorder point will be:

= dxL + Safety stock

where,

Reorder point = 60

dxL = (2000/250) x 6 = 48

Safety stock = Unknown

We then put the values gotten into the formula which will be:

Reorder point = dxL + Safety stock

60 = 48 + safety stock

Safety stock = 60 - 48

Safety stock = 12 units