Tax Preparers Inc. works 250 days per year. The company uses adding machine tape

Question

Tax Preparers Inc. works 250 days per year. The company uses adding machine tape at a rate of eight rolls per day. Usage is believed to be normally distributed with a standard deviation of three rolls during lead time. The cost of ordering the tape is $10 and holding costs are $0.30 per roll per year. Lead time is two days.

(a) Calculate the economic order quantity

(Round your answer to 1 decimal place, the tolerance is +/-0.1.)

(b) What reorder point will provide an order cycle service level of 97 percent?

tapes (Round up your answer to the nearest whole number.)

(c) How much safety stock must the company hold to have a 97 percent order-cycle service level?

units (Round your answer to 2 decimal places, the tolerance is +/-0.01.)

(d) What reorder point is needed to provide an order-cycle service level of 99 percent?

tapes (Round up your answer to the nearest whole number.)

(e) How much safety stock must the company hold to have a 99 percent order-cycle service level?

units (Round your answer to 2 decimal places, the tolerance is +/-0.01.)

Explanation / Answer

Solution:

From the given information
Annual demand A = 8 *250 = 2000 rolls
Holding cost C = 0.30
Ordering cost = 10
EOQ = sqrt(2AO/c)
= sqrt(2 * 2000 *10/0.30)
= 365
b) Reorder point = d*L + safety stock
= 8* 3+ 3.54 (from part c)
= 27.54

c) here Z(0.97) = 0.834
Safety Stock = Z d L
= 0.834 * 3 *2
= 3.524
d) Z(0.99) = 0.839
Safety Stock = 0.839 * 3* 2
= 3.56
Reorder Point = d*L + Safety Stock
= 8 * 3 + 3.56
= 27.56
e) Z(0.99) = 0.839
Safety Stock = 0.839 * 3* 2
= 3.56

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