Question

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. more than 175 pounds but less than or equal to 225 pounds.
b. less than or equal to 125 pounds.
c. more than 225 pounds.
d. more than 125 pounds but less than or equal to 175 pounds.

Answer 1

Option (A) is correct.

Step-by-step explanation:

Given that,

Standard deviation of weekly demand, SD = 7

Lead time from the plastic supplier = 2 weeks

Z = 1.645 at 95%

`Reorder\ point= (Weekly\ demand* Lead time)+ [Z* SD* (Lead time)^(0.5)]`

`Reorder\ point= (100* 2)+ [1.645* 7* (2)^(0.5)]`

= 216.28 or 216 pounds

Therefore, the reorder point for plastic with safety stock is more than 175 pounds but less than or equal to 225 pounds.