Vision Toys uses a fixed-quantity system to manage its inventories. The inventory includes plastic and LED bulbs. It was observed that the company often faces stockout of plastic. The average weekly demand for plastic is 100 pounds, and historical data show that the standard deviation of weekly demand is about 7. The lead time from the plastic supplier is 2 weeks. If the company's acceptable service level is 95 percent and the number of standard deviations necessary to achieve the acceptable service level is 1.645, the reorder point for plastic with safety stock is:
A) less than or equal to 125 pounds.
B) more than 125 pounds but less than or equal to 175 pounds.
C) more than 175 pounds but less than or equal to 225 pounds.
D) more than 225 pounds.

Question

Quizplus · Accepted Answer

The reorder point is calculated as the average demand during lead time plus safety stock. Average demand during lead time is 100 pounds/week * 2 weeks = 200 pounds. Safety stock is 1.645 * 7 pounds/week * sqrt(2 weeks) ≈ 16.3 pounds. Therefore, the reorder point is 200 + 16.3 ≈ 216.3 pounds, which falls in the range of more than 175 pounds but less than or equal to 225 pounds.

Vision Toys Uses a Fixed-Quantity System to Manage Its Inventories