Fiber Technology, Inc., manufactures glass fibers used in the communications industry. The company's materials and parts manager is currently revising the inventory policy for XL-20, one of the chemicals used in the production process. The chemical is purchased in 10-pound canisters for $102 each. The firm uses 5,400 canisters per year. The controller estimates that it costs $157 to place and receive a typical order of XL-20. The annual cost of storing XL-20 is $5.00 per canister.

Now also assume that the lead time required to receive an order of XL-20 is one month.

Required:

1. Assuming stable usage of XL-20 each month, determine the reorder point for XL-20.
2. Suppose that monthly usage of XL-20 fluctuates between 350 and 550 canisters, although annual demand remains constant at 5,400 canisters. What level of safety stock should the materials and parts manager keep on hand for XL-20? What is the new reorder point for the chemical?