What is the firm’s reorder point for the item of inventory being evaluated?.
Vargas enterprises wish to determine the economic order quantity (EOQ) for a critical and expensive inventory item that is used in large amounts at a relatively constant rate throughout the year. The firm uses 450,000 units of the item annually, has order costs of $375 per order, and its carrying costs associated with this item are $28 per unit per year. The firm plans to hold safety stock of the item equal to 5 days of usage, and it estimates that it takes 12 days to receive an order of the item once placed. Assume a 365-day year. What is the firm’s reorder point for the item of inventory being evaluated? (Hint: Be sure to include the safety stock.)
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