Question

Azril bakery has a plant for processing deluxe breakfast rolls. Their main line was
designed to process the nut-filled, cinnamon-flavoured deluxe roll. The following
information is based on their current yearly data:
Demand = 19,400 units/year
Standard deviation of weekly demand, σL = 63 units
Ordering costs =RM 34/order
Holding costs = RM 15/unit/year
Cycle-service level = 80% (z for 80% = 0.84)
Lead-time = 3 weeks
Number of weeks per year = 48 weeks
a. Calculate economic order quantity, EOQ.

b. Calculate total cost, TC

c. Determine the time between orders (TBO) for the current EOQ policy,
expressed in weeks.

d. Calculate Reorder point, R

e. For the most recent review, an inventory clerk checked the inventory of this
item and found 150 units. There were 420 units scheduled receipts pending and
37 units backorders at the time. Should a new order be placed? State your
reason.

Answer 1

a EOQ = [ 2 x demand pr annum x cost of ordering / cost of holding one unit per year]^0.5

= [ 2 x 19400x34/15]^0.5 =296.55=297

c. Time between order = weeks per year / number of orders

number of orders = 19400/297 =65.41

TBO= 48/65.41=0.733 weeks

d ROP =demand during lead time + safety stock

Demand per week = 19400/48= 404.16

ROP =404.16x 3 +z xSD x ( LT)^0.5

= 1212+ 0.84x 63x(3)^0.5 = 1304 units.

b. Total cost = ordering cost + holding cost

= 65.41x34+ 15 x ( 297/2+92) = 2224+3607.5 =5831.5

e. Since the on stock quantity is less than ROP, the order should be placed.