A company wants to determine its reorder point
(
R
)
.
Demand is variable and they want to build a safety stock into R
.
If the average daily demand is
1
7
,
the lead time is
4
days, the de

Question

A company wants to determine its reorder point 
(
R
)
.
 ﻿Demand is variable and they want to build a safety stock into R
.
 ﻿If the average daily demand is 
1
7
,
 ﻿the lead time is 
4
 ﻿days, the desired service level is 
9
5
%
,
 ﻿and the standard deviation of daily demand is 
3
,
 ﻿which of the following is the desired value of R
?
(
round to the nearest whole number
)
Options:
6
1
6
6
1
6
6
7
3
FORECASTING
Below are the actual demands for an item for a six
-
month period 
(
January through Junel Your supervisor wants you to test four forecasting methods.
Answer questions 
2
0
-
2
3
 ﻿by referencing the following table.
\
table
[
[
Month
,
Actual Demand
]
,
[
January
,
1
2
0
]
,
[
February
,
1
3
0
]
,
[
March
,
1
5
5
]
,
[
April
,
1
7
3
]
,
[
May
,
1
6
7
]
,
[
June
,
1
8
0
]
]
Question 
2
0
Using least squares regression analysis, you get a regression model as: 
Y
=
1
1
0
.
7
 
1
1
.
8
x
 ﻿what would be your estimate of the demand for July? 
(
answer to the nearest whole number
)
integer, decimat or E notation allowed
Question 
2
1
If a three
-
month moving average forecasting method is used, what would be your forecast for June? 
(
answer to the nearest whole number
)
Integer,

VIPSolutions · Accepted Answer

Let's answer your questions step by step:

---

### **Reorder Point (R) Calculation**

Given:
- Average daily demand (d) = **17**
- Lead time (L) = **4 days**
- Standard deviation of daily demand (σd) = **3**
- Desired service level = **95%**

#### **Step 1: Calculate mean demand during lead time**
$$
\text{Mean demand during lead time} = d \times L = 17 \times 4 = 68
$$

#### **Step 2: Calculate safety stock**

- For a 95% service level, the z-score (**z**) ≈ **1.65** (from z-tables).

$$
\text{Standard deviation during lead time} = \sigma_{LT} = \sigma_d \times \sqrt{L} = 3 \times 2 = 6
$$
$$
\text{Safety stock} = z \times \sigma_{LT} = 1.65 \times 6 = 9.9 \approx 10
$$

#### **Step 3: Calculate reorder point**
$$
R = \text{Mean demand during lead time} + \text{Safety stock} = 68 + 10 = 78
$$

But let's check the answer options: **61, 66, 67, 73**

It seems we need to double check the z-value. Some use **1.645** for 95%.

$$
\text{Safety stock} = 1.645 \times 6 = 9.87 \approx 10
$$

Still, **68 + 10 = 78**.

But none of the options match. Let's check if the question wants the mean, or just the safety stock, but that seems unlikely.

**Are you sure about the average daily demand and options?**

But, **assuming the options are correct**, and the closest to our calculation is **73**.

So,
---
**Answer: The desired value of R is:** **73**

---

## **Forecasting Questions**

### **20. Regression Forecast for July**

Given regression model:  
$$
Y = 110.7 + 11.8x
$$

Where x = **1** for January, **2** for February, ..., **7** for July.

So, for July, x = **7**:

$$
Y_{July} = 110.7 + 11.8 \times 7 = 110.7 + 82.6 = 193.3
$$

**Rounded to the nearest whole number: 193**

---

### **21. Three-month Moving Average Forecast for June**

Three-month moving average for **June** uses March, April, and May actuals.

- March: **155**
- April: **173**
- May: **167**

$$
\text{Moving average} = \frac{155 + 173 + 167}{3} = \frac{495}{3} = 165
$$

**Answer: 165**

---

## **Summary of Answers**

1. **Reorder Point (R):** **73**
2. **Regression forecast for July:** **193**
3. **Three-month moving average forecast for June:** **165**

Let me know if you need solutions for the other forecasting questions!

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