Business

Question

Bright Tots Toys manages its inventories by utilizing a fixed-quantity system. Batteries and plastic are included in their inventory. A manager reports that the company frequently finds itself dealing with a stockout of plastic. The 7-day demand for plastic is 50 pounds, on average. Further, the standard deviation of 7-day demand is approximately 5. The lead time from the plastic supplier is 14 days. The acceptable service level is 95 percent, and the number of standard deviations required to reach the acceptable service level is 1.645. With all of this in mind, the reorder point for plastic with safety stock is ________. Group of answer choices

1 Answer

  • Answer choices:

    A. less than or equal to 125 pounds

    B. more than 225 pounds

    C. more than 125 pounds but less than or equal to 175 pounds

    D. more than 175 pounds but less than or equal to 225

    Answer:

    A. Less than 125 pounds

    Explanation:

    We have the demand = 50 pounds

    The standard deviation is given as 5

    Service level is 95%

    Z critical value is 1.645

    Lead time is 2

    We calculate reorder time as

    RD = DMD * LT + ss

    Reorder point = RD

    Dmd is demand

    Ss is safety stock

    Lt lead time

    Safety stock = 1.645x 5 x √2 = 12

    Reorder = 50x2+12 = 112

    112 is less than 125 so answer choice is A

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