Question

When using the order point system, which of the following is true?

A) Order quantities are usually fixed.
B) The order point depends upon the demand during the lead time plus safety stock.
C) Time intervals between orders are constant.
D) A and B are true.
E) B and C are true.

Answer 1

In the order point system, the order point depends on demand during the lead time plus safety stock, which is the correct statement regarding how reorder levels are determined. Correct answer to the question is B) as it accurately reflects the considerations when setting the reorder level.

Step-by-step explanation:

When using the order point system, it is true that B) The order point depends upon the demand during the lead time plus safety stock. This implies that a business determines the reorder level based not only on expected demand during lead time but also considers a buffer stock known as safety stock to account for any uncertainties in supply or demand.

However, it is not necessarily true that order quantities are fixed or that time intervals between orders are constant as these can vary based on the order quantity and frequency required to meet demand. Therefore, the correct answer to the question is B) as it accurately reflects the considerations when setting the reorder level.