Question

R & B beverage company has a soft drink product that has a constant annual demand rate of 3600 cases. A case of the soft drink costs R & B $3. Ordering costs are $20 per order and holding costs are 25% of the value of the inventory. R & B has 250 working days per year, and the lead time is 5 days. Identify the following aspects of the inventory policy: a. Economic order quantity b. Reorder point d. Total annual cost

Answer 1

Given,

Annual Demand, D=3600

Cost of the item, c=$3

Ordering Cost,

Holding Cost,

Number of working days= 250

So, Demand per day=3600/250=14.4

Lead time, LT=5 days

a) Economic Order Quantity

,

Putting all the values we will get Q=438.17 or 439

b) Reorder Point, As the demand here is deterministic we need not have any safety stock

So, the reorder point will be equal to the demand during lead time,i.e 14.4*5=72

d) Total Cost here is the addition of total ordering cost, total holding cost and purchase cost

Total ordering cost= no. of orders* per order cost=

Total holding cost

and the purchasing cost, 3600*3=10800

So, the total cost is 10800+164.31+164.31=11128.62 (Ans)