MIN/MAX Reorder Point

A company is interested in establishing a reorder point for an item using a Min/ Max reorder point system. If the company wants to maintain 200 units of safety stock, what is the reorder point if the item has an average daily usage of 30 units and a lead time of four days?

Reorder level = Safety stock + (Average daily usage Lead time)

Reorder Level= 200 + (30 x 4)

Reorder Level= 320

If this company wants to increase the safety stock that it plans to hold from 200 to 365 units, what would be

(a) the annual carrying charge per unit when holding 200 units of safety stock and

(b) the annual carrying charge per unit cost when holding 365 units of safety stock when:

Annual demand = 11,000 units

Unit price = $12.50

Inventory carrying charge = 20%

Inventory carrying charge per unit when holding 200 units of safety stock:

Inventory carrying charge per unit when holding 365 units of safety stock: