Question

Bouncy Ball Company is revamping their current inventory system for their most popular line of blue bounce balls. The data they had gathered relating to their inventory control system is as follows:

             Average demand = 250/week

            Lead time = 3 weeks

            Order cost = $75/order

            Unit cost = $21.50

            Carrying charge rate = 0.20

            Number of weeks per year = 52

      

The company would like to use a fixed order quantity system. What is the economic order quantity? What should be the reorder point be?

Please answer with Excel and show all steps.

Answer 1

Average demand	250/Week
Lead time	3 Weeks
Order cost	575/ Order
Unit cost	$21.50
Carrying charge rate	0,20
Number of weeks per year	52

Economic order quantity = square root of [(2 x demand x ordering costs) ÷ carrying costs]

Q= Square Root of ((2 x 250 x 575) / 0.20)

EOQ = 1198.96

Reorder Pont – (Average daily unit sales x Delivery Lead Time) + Safety Stock

Average daily unit sales = 250/7 = 35.71

Delivery Lead Time = 3 Weeks

Safety Stock = 250/ Week

                     = (35.71 x 3) + 250

Reorder quantity = 357.13