In the context of a fixed-order-quantity system, stockouts occur whenever the lead-time demand _____.
A) exceeds the reorder point
B) exceeds the work-in-process inventory
C) becomes equal to the finished-goods inventory
D) becomes equal to the break-even point

Question

Quizplus · Accepted Answer

In a fixed-order-quantity system, the inventory is ordered in fixed quantities and replenished when it reaches a certain reorder point. Stockouts occur when the lead-time demand (the demand during the time it takes to replenish the inventory) exceeds the reorder point, meaning that the inventory has been depleted before the replenishment arrives. Therefore, the correct choice is A, which states that stockouts occur when the lead-time demand exceeds the reorder point. B, C, and D are not relevant to the occurrence of stockouts in a fixed-order-quantity system.

In the Context of a Fixed-Order-Quantity System, Stockouts Occur Whenever