B)4 days C) 12 days D) 7 days 43, 44, 45) (3 points) An inventory item of Xiong
ID: 2519640 • Letter: B
Question
B)4 days C) 12 days D) 7 days 43, 44, 45) (3 points) An inventory item of Xiong Corp. has an average daily 25 units with a maximum daily demand of 30 units. The economic order quantity is 500 daily demand of units. Without safety stocks, the reorder point is 125 units. Safety stocks are set at 235 units. Required: a. Determine the reorder point with safety stocks b. Determine the maximum inventory level. c. Determine the average lead time. Answer a) b) c) 46) Costs of abnormal spoilage are usually accounted for as A) a deduction from the cost of goods sold B) a component of the costs of good units manufactured )a separate line item in an income statement D) an asset on a balance sheetExplanation / Answer
We have to first find out average lead time of delivery
Formula of Reorder Point = (Average daily units X Average lead time of delivery) + Safety Stocks
now reorder point without safety stocks = 125 units
Therefore the average lead time of delivery = Reorder point / Average Daily units = 125/25 = 5 days
Now Reorder point with safety stocks = (25 x 5) + 235 = 360 units
2. Maximum level of inventory = Reorder level + EOQ - (Minimum Usage X Minimum lead time)
Now Minimum usage = Average usage x 2 - Maximum usage
= 25 x 2 - 30 = 20 units
Assumption min lead time has been taken as 3 days and I have taken reorder level with safety stocks
therefore Maximum level of inventory = 360 + 500 - (20 x 3) = 800 units
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