QUESTION 3 The Cheezy-Pretz Corporation manufactures and distributes cheese-coat
ID: 348163 • Letter: Q
Question
QUESTION 3 The Cheezy-Pretz Corporation manufactures and distributes cheese-coated pretzels. They purchase their cheese in 10 kg packages that come in batches of 500 kg (i.e., they currently order in lots of 50 packages at a time) from a specific supplier. They order the same amount every month, since annual demand is 600 packages. Each package costs Cheezy-Pretz $20, and they estimate that holding a package in inventory costs $5.25 per year. Further, they have studied their ordering process and estimate that it costs them $35 to place an order. They have been told that if they find the optimal order quantity, they could save money on annual ordering plus holding costs. Cheezy-Pretz would like to know how much they would save per year in ordering plus holding costs if they used the EOQ rather than their current order quantity of 50 packages at a time a. $100 per year but $150 per year but$200 per year but$300 per year QUESTION 4 A night club that operates seven days a week uses a periodic review system where they check the stock of beer and liquor every Tuesday (at noon) and place an order that arrives on Thursday (at noon). They have found that demand for Silk beer smooth as silk ) averages 4.5 units per day with a standard deviation of 1.75 units. In any given week, they would like to be 95% sure that they don' t run out of Silk beer before their order arrives. On Tuesday, if they have 16 units of beer on hand, how many units should they order? a. 16 28 C. 32 d. e. 23Explanation / Answer
Answer to Question 3 :
The Optimum Order Quantity ( as per EOQ model ) will be
= Square root ( 2 x Ordering cost x Annual demand / Annual inventory holding cost )
= Square root ( 2 x 35 x 600 / 5.25 )
= 89.44 ( 89 rounded to nearest whole number )
AT ORDER QUANTITY OF 89 PACKAGES
Annual ordering cost = Ordering cost x Number of orders = Ordering cost x Annual demand /Order quantity = $ 35 x 600 /89 = $235.95
Annual holding cost = Annual unit holding cost x Average inventory = Annual unit holding cost x Order quantity / 2 = $5.25 x 89/ 2 = $233.62
Annual ordering plus holding cost = $235.95 + $233.62 = $469.57
AT ORDER QUANTITY OF 50 PACKAGES :
Annual ordering cost = Ordering cost x Number of orders = Ordering cost x Annual demand /Order quantity = $ 35 x 600 /50 = $420
Annual holding cost = Annual unit holding cost x Average inventory = Annual unit holding cost x Order quantity / 2 = $5.25 x 50/2 = 131,25
Annual ordering plus holding cost = $420 + $131.25 = $551.25
Therefore, amount they would save per year = $551.25 - $469.57 = $81.68 ( which is < $100 per year )
ANSWER : a ) < $100 PER YEAR
Answer to question 4 :
Following are given :
Review period = T = 7 days ( since order is reviewed every Tuesday)
Lead time = L = 2 days ( 2 days is the difference between order arrival time THURSDAY and order placement time TUESDAY)
Therefore , Protection Period = P = T + L = 7 + 2 = 9 days
standard deviation of daily demand = 1.75 units
Therefore , standard deviation of demand during protection period = 1.75 x square root ( 9 ) = 1.75 x 3 = 5.25
Z value for ins tock probability = NORMSINV ( 0.95 ) = 1.6448
Hence, Safety stock = Z value x standard deviation of demand during protection period = 1.6448 x 5.25 = 8.635 ( 9 units of beer by rounding to next higher whole number )
Reorder point = Average daily demand x Protection period + Safety stock = 4.5 x 9 + 8.635 = 40.5 + 9 = 49.5
Quantity in hand/ stock = 16 units of beer
Therefore , quantity to be ordered = Reorder point – Quantity in stock = 49.5 – 16 = 33.5 ( 34 by rounding to nearest whole number )
THEY SHOULD ORDER : d ) 34 UNITS
ANSWER : a ) < $100 PER YEAR
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