It is your responsibility, as the new head of the automotive section of Nichols
ID: 355172 • Letter: I
Question
It is your responsibility, as the new head of the automotive section of Nichols Department Store, to ensure that reorder quantities for the various items have been correctly established. You decide to test one item and choose Michelin tires, XW size 185 × 14 BSW. A perpetual inventory system has been used, so you examine this as well as other records and come up with the following data:
A. Determine the ordery quantity.
B. Determine the reorder point.
days
Cost per tire $ 50 each Holding cost 25 percent of tire cost per year Demand 1,100 per year Ordering cost $ 32 per order Standard deviation of daily demand 7 tires Delivery lead time 8days
Explanation / Answer
Annual demand (D) = 1100 tires
Ordering cost (S) = $32 per order
Holding cost (H) = 25% of cost = 25% of $50 = $12.5
Lead time (L) = 8 days
Assuming 365 days per year, Average daily demand (d) = D/365 days = 1100/365 = 3.01 tires
a) Economic order quantity = sqrt of (2DS/H)
= sqrt of [(2 x 1100 x 32) / 12.5]
= sqrt of 5632
= 75.05 or rounded to 75 tires
b) Reorder point = d x L = 3.01 x 8 = 24.08 or rounded to 24 units
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.