Question
Download Solution PDFA company uses 2555 units for an item annually, Delivery lead time is 8 days. The recorder point, in number of units, to order optimum quantity is
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFConcept:
Reorder level is the inventory level at which a company should place a new order in order to maintain the stock for selling and running the business effectively.
Lead time represents the time gap between placing an order and when the order is received.
Reorder level (RoL) = Lead time × daily demand
Calculation:
Given:
The annual demand for item D = 2555 units, Lead time = 8 days
daily demand of item d = \(\frac{d}{365} = \frac{2555}{365}\)
= 7 units
Reorder level (RoL) = Lead time × daily demand
= 8 × 7
= 56 units
Additional Information
- The Economic order quantity or optimum quantity is the order quantity that minimizes the total holding cost and ordering cost in an inventory. At this point Holding cast is equal to ordering cast.
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