Question

Retailers Warehouse (RW) is an independent supplier of household items to department stores. RW attempts to stock enough items for a 90 percent service probability.

A stainless steel knife set is one item it stocks. Demand (1,800 sets per year) is relatively stable over the entire year. Whenever new stock is ordered, a buyer must assure that numbers are correct for stock on hand and then phone in a new order. The total cost involved to place an order is about $5. RW figures that holding inventory in stock and paying for interest on borrowed capital, insurance, and so on, add up to about $3 holding cost per unit per year.

Analysis of the past data shows that the standard deviation of demand from retailers is about four units per day for a 365-day year. Lead time to get the order is seven days.

**a.** What is the
economic order quantity? **
(Round your answer to the nearest whole
number.)**

Economic order quantity | sets |

**b.** What is the
reorder point? **
(****Use
Excel's NORMSINV() function to find the correct critical value for
the given ?-level.**

Reorder point | sets |

Answer #1

**To be calculated:**

(a) Economic Order Quantity (EOQ)

(b) Reorder Point

**Given values:**

Service level = 90%

Annual demand = 1,800 sets per year

Cost of ordering, Co = $5

Holding cost, H = $3 per unit per year

Standard deviation, SD = 4 units per day

Lead time, LT = 7 days

**Solution:**

**(a)** Economic Order
Quantity (EOQ) is calculated as;

EOQ = SQRT (2*D*Co) / H

where,

D = Annual demand

Co = Cost of ordering

H = Holding cost

EOQ = SQRT (2 x 1800 x 5) / 3

EOQ = SQRT (6000)

EOQ = 77.46 or 77 sets

**EOQ = 77 sets**

**(b)** Reorder point
is calculated as;

R = dL + [z x (d) x SQRT (L)]

where, d = daily demand

z = z-value

(d) = Standard deviation in demand

L = Lead time

Using Excel’s NORMSINV() function, z-value for 90% service level is computed as;

NORMSINV (0.90) = 1.28

z = 1.28

Daily demand, d = (1800/365) = 4.93151

Putting the given values in the above formula, we get;

R = dL + [z x (d) x SQRT (L)]

R = (4.93151 x 7) + [1.28 x 4 x SQRT (7)]

R = 34.52057 + 13.54625

R = 48.06682

**Reorder point = 48
sets**

A local service station is open 7 days per week, 365 days per
year. Sales of 10W40 grade premium oil average 25 cans per day.
Inventory holding costs are $0.90 per can per year. Ordering costs
are $7 per order. Lead time is two weeks. Backorders are not
practical—the motorist drives away.
a.
Based on these data, calculate the economic order quantity and
reorder point. Hint: Assume demand is deterministic. (Round
your answers to the nearest whole number.)
Economic order...

Sarah's Muffler Shop has one standard muffler that fits a large
variety of cars. Sarah wishes to establish a reorder point system
to manage inventory of this standard muffler.
Annual demand
4,500
mufflers
Ordering cost
$65
per order
Standard deviation of daily demand
6
mufflers per
working day
Service
probability
90
%
Item
cost
$35
per muffler
Lead
time
3
working
days
Annual holding cost
20
% of item
value
Working days
300
per year
Use the above information to...

Gentle Ben's Bar and Restaurant uses 6,500 quart bottles of an
imported wine each year. The effervescent wine costs $8 per bottle
and is served only in whole bottles because it loses its bubbles
quickly. Ben figures that it costs $20 each time an order is
placed, and holding costs are 35 percent of the purchase price. It
takes five weeks for an order to arrive. Weekly demand is 130
bottles (closed two weeks per year) with a standard deviation...

Dunstreet's Department Store would like to develop an inventory
ordering policy of a 90 percent probability of not stocking out. To
illustrate your recommended procedure, use as an example the
ordering policy for white percale sheets.
Demand for white percale sheets is
3,000 per year. The store is open 365 days per year. Every four
weeks (28 days) inventory is counted and a new order is placed. It
takes 11 days for the sheets to be delivered. Standard deviation of...

Can you please answer and explain this question.
Gentle Ben's Bar and Restaurant uses 6,200 quart bottles of an
imported wine each year. The effervescent wine costs $8 per bottle
and is served only in whole bottles because it loses its bubbles
quickly. Ben figures that it costs $20 each time an order is
placed, and holding costs are 25 percent of the purchase price. It
takes three weeks for an order to arrive. Weekly demand is 124
bottles (closed...

The annual demand for a product is 15,900 units. The weekly
demand is 306 units with a standard deviation of 80 units. The cost
to place an order is $33.50, and the time from ordering to receipt
is eight weeks. The annual inventory carrying cost is $0.10 per
unit.
a. Find the reorder point necessary to provide
a 99 percent service probability. (Use Excel's NORMSINV()
function to find the correct critical value for the given
α-level. Round "z" value to...

Dunstreet's Department Store would like to develop an inventory
ordering policy of a 95 percent probability of not stocking out. To
illustrate your recommended procedure, use as an example the
ordering policy for white percale sheets.
Demand for white percale sheets is
3,200 per year. The store is open 365 days per year. Every four
weeks (28 days) inventory is counted and a new order is placed. It
takes 15 days for the sheets to be delivered. Standard deviation of...

Dunstreet's Department Store would like to develop an inventory
ordering policy of a 98 percent probability of not stocking out. To
illustrate your recommended procedure, use as an example the
ordering policy for white percale sheets.
Demand for white percale sheets is
4,600 per year. The store is open 365 days per year. Every two
weeks (14 days) inventory is counted and a new order is placed. It
takes 13 days for the sheets to be delivered. Standard deviation of...

A product with an annual demand of 1100 units has
Co = $24.5 and Ch = $7. The
demand exhibits some variability such that the lead-time demand
follows a normal probability distribution with µ = 30 and
σ = 6.
What is the recommended order quantity? If required, round your
answer to two decimal places.
Q* =
What are the reorder point and safety stock if the firm desires
at most a 3% probability of stock-out on any given order...

A product with an annual demand of 1000 units has
Co = $25.5 and Ch = $8. The
demand exhibits some variability such that the lead-time demand
follows a normal probability distribution with µ = 25 and
σ = 5.
What is the recommended order quantity? If required, round your
answer to two decimal places.
Q* = __________
What are the reorder point and safety stock if the firm desires
at most a 2% probability of stock-out on any given...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 7 minutes ago

asked 19 minutes ago

asked 29 minutes ago

asked 46 minutes ago

asked 50 minutes ago

asked 58 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago