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.
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
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