Question

15. A store has an ordering cost of $250, a carrying cost of $4 per unit, annual product demand of 6,000 units, and it purchases product from a supplier for $500 per unit, however, the supplier has offered the store a discount price of $400 if it will purchase 1,200 units; the store’s minimum total inventory

cost is

a. $2,407,300

b. $3,607,200

c. $3,464,000

d. $2,987,400

16. If a store has annual demand (365 days per year) of 6,000 units and the lead time for it to receive

an order from its supplier is 20 days, its EOQ reorder point is approximately

a. 300 units

b. 329 units

c. 428 units

d. 600 units

17. If a store has annual average daily demand of 16 units with a standard deviation of 2 units, and the lead time for it to receive an order from its supplier is 20 days, the store’s safety stock for a 95%

service level is approximately

a. 14.8 units

b. 10.4 units

c. 17.5 units

d. 26.1 units

18. If a store has annual average daily demand of 16 units with a standard deviation of 2 units, and the lead time for it to receive an order from its supplier is 20 days, the store’s reorder point for a 95%

service level is approximately

e. 326.1 units

f. 334.8 units

g. 348.2 units

h. 356.6 units

Answer 1

16. EOQ Reorder point = ((annual demand)/(total days per year))*Lead time to receive order from supplier

= (6000/365)*20

=16.44*20

=329

17) Safety stock = safety factor * standard deviation of demand * sqrt (Lead time)

Safety factor for 95% service level = 1.64

Safety stock = 1.64*2*sqrt(20) = 1.64*2*4.48 = 14.8 units

18) Re-order point = (Lead time * Avergae demand) + Safety stock

= (Lead time * Avergae demand) + (safety factor * standard deviation of demand * sqrt (Lead time))

Safety factor for 95% service level = 1.64

Safety stock = 1.64*2*sqrt(20) = 1.64*2*4.48 = 14.8 units

(Lead time * Avergae demand) = 20 days * 16 units = 320

Re-order point = 320 + 14.8 = 334.8 units

15)Total min.invenroty cost = 2407300 $