QUESTION 13 The MIS Autoparts Inc. imports and sells standard air filters for mo
ID: 346076 • Letter: Q
Question
QUESTION 13
The MIS Autoparts Inc. imports and sells standard air filters for most Japanese cars, and it operates under the continuous review system. The average demand for this item is 1200 units per month, and the standard deviation is 300 units per month. It costs the company $200 to process each order. The holding cost for one unit is $4.00 per year, and the lead time is 4 months. If the customer service level is set at 91%, what is the reorder point (ROP) for this air filter?
Less than 5000 units
Greater than 5000 units but less than 5300 units
Greater than 5300 units but less than 5600 units
Greater than 5600 units but less than 5900 units
Greater than 5900 units
Less than 5000 units
Greater than 5000 units but less than 5300 units
Greater than 5300 units but less than 5600 units
Greater than 5600 units but less than 5900 units
Greater than 5900 units
Explanation / Answer
Corresponding Z value for customer service level of 91 % = NORMSINV ( 0.91 ) = 1.3407
Standard deviation of monthly demand = 300 units
Lead time = 4 months
Therefore, Standard deviation of demand during lead time = 300 x Square root ( 4 ) = 300 x 2 = 600 units
Therefore , required Safety Stock
= Z value x Standard deviation of demand during lead time
= 1.3407 x 600
= 804.42
Reorder point for air filters
= Average monthly demand x Lead time ( months ) + Safety stock
= 1200 x 4 + 804.42
= 4800 + 804.42
= 5604.42
Therefore correct answer for reorder point will be “ Greater than 5600 units but less than 5900 units “
ANSWER : GREATER THAN 5600 UNITS BUT LESS THAN 5900 UNITS
ANSWER : GREATER THAN 5600 UNITS BUT LESS THAN 5900 UNITS
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