In Setting the Reorder Point for an Item with Variable

question 5

Multiple Choice

In setting the reorder point for an item with variable demand,a service level of 95% will imply which of the following?

• A)Stockouts may occur only 5 times during the phase of 100 inventory cycles.
• B)Five percent (5%)of the supplier shipments will be late.
• C)There is a 0.05 probability that the forecasted demand is not accurate.
• D)The forecast demand will be accurate 95% of the time.

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Definitions:

Payback Period

The amount of time it takes for an investment to generate cash flows sufficient to recover its initial cost.

Cash Receipts

Money received by a business during a given period, from operations, investments, and financing.

After-Tax Cash Flows

The net cash inflows and outflows of a project or investment after accounting for income taxes.

Pre-Tax Cash Flows

The amount of cash generated by a company's operations before considering the impact of income taxes.