Question

"Jim uses a fixed order interval approach to managing his inventory of corn chip bags (i.e., Jim orders more bags on the 1st of each month). Jim doesn't know demand with certainty, but he usually ranges from 2000 to 4000 bags sold a month, so he keeps 4500 bags in stock. Last month Jim used 2750 bags. Using the periodic review (P) system, how many bags will Jim order this month?"

Answer 1

Jim will order 1750 bags of corn chips this month to replenish his inventory to the target level of 4500 bags based on the periodic review system.

Step-by-step explanation:

Jim uses a fixed order interval approach for inventory management, meaning he places orders for new inventory at set time intervals, regardless of the current stock level. Given that Jim orders on the 1st of each month, and his usual demand ranges from 2000 to 4000 bags, he keeps a stock of 4500 bags to ensure he can meet demand.

Last month, Jim used 2750 bags, so to calculate how many bags Jim will order this month using the periodic review system, we would subtract the number of bags used from the target inventory level. So, Jim will order: 4500 bags (target inventory level) - 2750 bags (bags used last month) = 1750 bags this month.

Answer 2

2,750 units of bags is what Jim will order this month

Step-by-step explanation:

In this question, we are asked to use periodic review system to calculate the number of bags that Jim will order this month.

The inventory level at restocking level should be represented by R

The new inventory level be represented by I

Now, to return the new inventory level back to the restoring level, let some amount Q be added.

This means that Q = R - I

From the question, R is 4500

Out of 4,500 he used 2750 last month

The on hand inventory is thus 4500-2750 = 1,750

Therefore, the amount Q = R - I = 4,500 - 1750 = 2,750

This means that to restock, he has to order a total of 2,750 units