Multiplying the purchase order lead time by the quantity of units sold per unit of time yields ____________?
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Answer: D. reorder point
Explanation
Multiplying purchase order lead time by the quantity of units sold per unit of time yields the reorder point. This calculation determines the exact inventory level that triggers the placement of a new purchase order. Establishing a precise reorder point prevents stockouts by ensuring new inventory arrives before existing stock depletes. Inventory control models use lead time and usage rate formulas to maintain continuous operational product flows. Lead time represents the duration between placing a purchase order and receiving the delivered goods from suppliers. Safety stock is often added to the reorder point calculation to guard against unexpected demand spikes or delivery delays.
Option A refers to storage and holding expenses rather than the physical inventory triggering purchase orders. Option B encompasses all combined ordering and carrying expenses rather than the inventory reorder trigger level. Option C calculates optimal order batch sizes rather than the specific inventory trigger threshold.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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