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Sam's Cat Hotel operates 52 weeks per year and 6 days per week. It purchases kitty...

Sam's Cat Hotel operates 52 weeks per year and 6 days per week. It purchases kitty litter for $17.60 per bag from its supplier. The demand for the kitty litter is 150 bags per week. The ordering cost is $46 per order. The unit holding cost is $4 per bag per year. The order lead time is 3 weeks. Assume EOQ model is valid in this problem. What is the length of the inventory cycle if the Hotel uses an order quantity of 750 units? Show a brief calculation and explanation.

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Answer #1

Economic order quantity ( EOQ )

= square root ( 2 x Ordering cost x Annual demand / Unit holding cost )

= square root ( 2 x 46 x 150 / week x 52 weeks / 4 )

= Square root ( 179400)

= 423.55 ( 424 rounded to nearest whole number)

However we have to calculate length of inventory cycle for an order quantity of 750 as has been asked for .

Length of inventory cycle is the amount of time it takes to deplete inventory from maximum level to minimum level ZERO.

Maximum level inventory is order quantity of 750 units .

Since demand for Kitty Litter bag is 150 per week , amount of time it will take to consume 750 units = 750/150 weeks = 5 weeks

LENGTH OF INVENTORY CYCLE - 5 WEEKS
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