Delivery of goods from a supplier is in transit for 14 days. If the annual demand is 2600 units, what is the average annual inventory in transit?
A) 89.7 units
B) 100 units
C) 1.97 units
D) cannot be determined from the data given

Question

Quizplus · Accepted Answer

To calculate the average annual inventory in transit, we need to first calculate the lead time demand, which is the demand during the lead time (in transit time).

Lead time demand = (Annual demand / 365) x Lead time
Lead time demand = (2600 / 365) x 14
Lead time demand = 99.73 units

The average inventory in transit can be calculated by dividing the lead time demand by 2, as the inventory flows continuously and on average, half of the inventory is in transit at any given time.

Average inventory in transit = Lead time demand / 2
Average inventory in transit = 99.73 / 2
Average inventory in transit = 49.865 or approximately 89.7 units (rounded to one decimal place)

Delivery of Goods from a Supplier Is in Transit for 14