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 $108 each. The firm uses 7,200 canisters per year. The controller estimates that it costs $163 to place and receive a typical order of XL-20. The annual cost of storing XL-20 is $5.30 per canister.

Suppose that monthly usage of XL-20 fluctuates between 500 and 700 canisters, although annual demand remains constant at 7,200 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?