Given the following information, formulate an inventory management system. The i

Question

Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year $ 11.00 $270.00 37 23,400 Standard deviation of weekly demand Lead time Service probability 25 per week Item cost Order cost Annual holding cost (%) Annual demand Average demand 3 weeks 95 % % of item cost 468 per week a. Determine the order quantity and reorder point. (Use Excel's NORMSINV) function to find the correct critical value for the given a-level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.) Optimal order quantity Reorder point 1762 units 1475 units b. Determine the annual holding and order costs. (Round your answers to 2 decimal places.) Holding cost Ordering cost 3585.67 3585.70 c. Assume a price break of $60 per order was offered for purchase quantities of 2,300 or more units per order. If you took advantage of this price break, how much would you save annually? (Round your answer to 2 decimal places.) Annual savings $1880.44

Explanation / Answer

Question - c ............... Annual savings = $ 354.34

Total cost associated with ordering of 2300 Units

= 2300/2 * 11 * 37% + 23400/2300 * 270 = 4680.5 + 2746.96 = 7427.46

Current cost associated with ordering EOQ = 3585.67 + 3587.70 = 7173.37 ( refer to question - b)

Additional cost with ordering of 2300 units = 7427.46 - 7173.37 = 254.09

Saving with ordering of 2300 units = 23400 / 2300 * 60 = 610.43

Annual saving = 610.43 - 254.09 = 356.34

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.