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Question: Suppose Sam's Cat Hotel operates 51 weeks per year, 6 days per week, and uses...

Question: Suppose Sam's Cat Hotel operates 51 weeks per year, 6 days per week, and uses a continuous review...

Suppose Sam's Cat Hotel operates 51 weeks per year, 6 days per week, and uses a continuous review inventory system. IT purchases kitty litter for $11.00 per bag. The following informaiton is available about these bags:

Demand=75 bags/week

Order Cost=$58.00/order

Annual holding cost=20% of cost

Desired cycle-service level=80%

Lead time-5 weeks (30 working days)

Standard deviation of weekly demand=15 bags

Current on hand inventory is 320 bags, with no open orders or backorders.

(A)Suppose that the weekly demand forecast of 75 bages is incorrect and actual demand averages only 50 abgs per week. How much higherwill total costs be,owing to the disorted EOQ caused by this forecast error?

The costs will be $? higher owing to the error in EOQ? (enter resposne to 2 decimal places)

(B) Suppse that the actual demand is 50 bags but that ordering costs are cut to only $10.00 by using the intertnet to automate order placing. However, the buyer does not tell anyone and the EOQ is not adjusted to reflect the reduciton in S. How much higher will total costs be, comapred ot what they could be if EOQ were adjusted?

The costs will be $? higher owing to the error in EOQ. (enter repsosne rounded to 2 decimal places)

PLEASE SHOW ALL STEPS AND USE CORRECT NUMBERS IN PROBLEM.

Business   Operations-Management   
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Homework Answers

Answer #1

Annual demand (D) = Number of weeks* Weekly demand

Ordering cost (S) = 58

Holding cost (H) = 20%*Price = 20%*11 = 2.2

EOQ = sqrt(2*D*S/H)

Total cost = Ordering cost + Holding cost = D/EOQ*S + EOQ/2*H

A) If weekly demand is 75, D = 51*75 = 3825

EOQ = sqrt(2*3825*58/2.2) = 449

Total cost = 3825/449*58 + 449/2*2.2 = 988

If weekly demand is 50, D = 51*50 = 2550

EOQ = sqrt(2*2550*58/2.2) = 367

Total cost = 3825/367*58 + 367/2*2.2 = 806.70

Total cost is higher by = 988-806.70 = 181.30

B) D = 2550

S = 10

EOQ = sqrt(2*2550*10/2.2) = 152

Total cost = 2550/152*10 + 152/2*2.2 = 334.96

Total cost is higher by = 806.70 - 334.96 = 471.74

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