Question

Which of the following variables does NOT interfere with the Reorder Point?

options

Daily sales.

Refill time in days.

Product demand.

Average Collection Period,

Answer 1

ANSWER :

Average Collection Period,

REASON :

The ideal reorder point ensures that your business does not dip below your safety stock levels.

Your safety stock is your trump card in emergency situations. You shouldn’t have to keep dipping into it.  

Think about it. If you miss your reorder point and use some safety stock, you need to order even more materials to replace that safety stock once the supply order arrives. If you don’t, your safety stock will eventually be worn down to nothing. Of course, extra orders costs extra money, so should be avoided.  

Therefore, an ideal reorder point is typically a little higher than your safety stock level to factor in delivery time. But how much higher does it need to be? It depends on the average lead time of your reorder and the average demand during the lead time period.  

Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset. Unlike futures, the holder is not required to buy or sell the asset if they choose not to.

• Call options allow the holder to buy the asset at a stated price within a specific timeframe.
• Put options allow the holder to sell the asset at a stated price within a specific timeframe.

Days sales outstanding (DSO) is a measure of the average number of days that it takes a company to collect payment after a sale has been made. DSO is often determined on a monthly, quarterly or annual basis, and can be calculated by dividing the amount of accounts receivable during a given period by the total value of credit sales during the same period, and multiplying the result by the number of days in the period measured.

The average collection period is the amount of time it takes for a business to receive payments owed by its clients in terms of accounts receivable (AR). Companies calculate the average collection period to make sure they have enough cash on hand to meet their financial obligations.The average collection period is calculated by dividing the average balance of accounts receivable by total net credit sales for the period and multiplying the quotient by the number of days in the period.Average collection periods are most important for companies that rely heavily on receivables for their cash flows.