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Harrowing Company has the following information: Annual Demand 3,500 units Order Size 500 units Ordering Cost per Order $400 Carrying Costs per Unit for One Year $40 Lead Time (maximum 20 days) 10 days Maximum Daily Use 25 units Work Year 250 days What is the reorder point (including the safety stock needed to cover the worst-case scenario)

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Answer:

Recoder point =625 units

Explanation:

Detailed explanation of answer is given in the attached file.

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Reorder point of the given question is 430 units

Computation of average lead time;

Average lead time = [20 + 10] / 2

Average lead time = 15 days

Computation of safety stock

Safety stock = [Maximum Daily Use × Maximum leads days] - [Average daily use - Average lead time]

Safety stock = [(25)(20)] - [(3500/250)(15)]

Safety stock = 500 - [210]

Safety stock = 290 units

Reorder point = [(Average daily use)(Minimum lead time)] + Safety stock

Reorder point = [(3500/250)(10)] + 290

Reorder point = 430 units

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