Question

Using the fixed-time period inventory model, and given an average daily demand of 200 units, 4 days between inventory reviews, 5 days for lead time, 120 units of inventory on hand, a "z" of 1.96, and a standard deviation of demand over the review and lead time of 3 units, which of the following is the order quantity?

A. About 1,086
B.About 1,686
C. About 1,806
D. About 2,206
E. About 2,686

Answer 1

Answer:

Correct option: B. About 1,686.

Step-by-step explanation:

The formula to compute the order quantity (Q) is:

$Q=(q_{d}\times (I+L))+(z\times\sigma_{I+L})-I_{n}$

Here

$q_{d}=average\ daily\ semand=200\\I = Inventory\ review\ time=4\\L=lead\ time=5\\\sigma_{I+L}=standard\ deviation\ over\ the\ review\ and\ lead\ time=3\\I_{n}=number\ of\ units\ of\ inventory\ on\ hand=120$

Compute the order quantity as follows:

$Q=(q_{d}\times (I+L))+(z\times\sigma_{I+L})-I_{n}\\=(200\times(4+5))+(1.96\times 3)-120\\=1800+5.88-120\\=1685.88\\\approx1686$

Thus, the order quantity was about 1,686.