Question

very popular "BIG BUCKS" automated teller machine, which only dispenses $100 bills. She estimates that this machine dispenses an average of 25,000 bills per month, and that carrying a bill in inventory costs 10 percent of its value annually. She knows that each order for these bills costs $300 for clerical and armored car delivery costs, and that order lead time is 12 days. Assuming a 30-day month, at what point should bills be reordered? Select one:

a. 834 bills remaining b. 0 bills remaining c. 5,000 bills remaining d. 10,000 bills remaining e. 25,000 bills remaining

Answer 1

Given,

Lead time = 12days

Average monthly sales= 25,000bills.

Monthly days=30days

So,

Average daily sales =25000/30=833.3 bills per day

Lead time demand = lead time * avg sales

Lead time demand= 12 days * 833.3 units

= 9999.6 which implies 10000units (app)

Lead time demand= 10,000units

We need to find Reorder point

Reorder point= lead time demand + safety stock

Safety stock=(max daily usage * max lead time)-(avg daily usage * avg lead time)

Safety stock here is assumed as 0 , As we don't have any data related to maximum daily usage and max lead time

So, Reorder point= lead time demand+ safety stock

Reorder point= 10,000+ 0

So we need to place an order when the stock we have is 10,000units

Option C that when we have 10,000units we need to place and order