Question

A car-service center orders new tires using a continuous review system. The expected demand is 420 tires per year, and the lead time is one week, on average. The manager decides to hold safety stock of 20 tires. What is the reorder point? You should assume 52 weeks per year. a. 30 b. 20 c. 26 d. 28

Answer 1

Answer:

d. 28

Explanation:

The computation of the reorder point is shown below:

= Demand × lead time + safety stock

where, Demand equal to

= Expected demand ÷ total number of weeks in a year

= 420 tires ÷ 52 weeks

= 8.07692

So, the reorder point would be

= 8.07692 × 1 + $20

= 28 units

We simply multiplied the demand with the lead time and then added to the safety stock