Question

MNO has an average annual demand for red, medium polo shirts of 100,000 units. The cost...

MNO has an average annual demand for red, medium polo shirts of 100,000 units. The cost of placing an order is $500 and the cost of carrying one unit in inventory for one year is $20.

Required:

a. Use the economic-order-quantity model to determine the optimal order size.

b. Determine the reorder point assuming a lead time of 12 days and the store is open 250 days in the year.

c. Determine the safety stock required to prevent stockouts assuming the maximum lead time is 15 days and the maximum daily demand is 600 units.

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Homework Answers

Answer #1

In the question, the data provided:-

D=100,000 units

Ordering cost =$500

Carrying cost =$20

Answer:- As we know that Economic order quantity = [2*D*ordering cost/carrying cost]0.5

EOQ=[2*100,000*500/20]0.5

EOQ=2236.07=2236 units

Answer:- Daily Demand = Total Demand / Working days

Daily Demand =100,000/250 =400 units

Reorder Point =Daily Demand * Lead time

Reorder Point = 400*12

Reorder Point =4800 units

Answer:- Maximum demand per day =600 units

Maximum lead time =15 days

Maximum lead time demand = 600*15 =9000 units

Reorder point without safety stock =4800 units

Safety Stock =9000 -4800

Safety Stock = 4200 units

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