A Product Has a Reorder Point of 260 Units, and Is

question 140

Essay

A product has a reorder point of 260 units, and is ordered ten times a year. The following table shows the historical distribution of demand values observed during the reorder period.
Currently, stockouts are valued at $5 per unit per occurrence, while inventory carrying costs are $2 per unit per year. Should the firm add safety stock? If so, how much safety stock should be added?

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Definitions:

Merchandise Inventory

Goods and products that a retailer, wholesaler, or distributor has on hand to sell to customers.

Purchases

In accounting, refers to the acquiring of goods or services that are necessary for the operation of a business or for resale.

Cost Of Merchandise Sold

The total cost of acquiring or manufacturing the goods that were sold to customers during a period.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent ones, preparing the books for the next period.