Scenario 9.7 Cranium, Inc., purchases term papers from an overseas supplier unde

Question

Scenario 9.7 Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year. A normal distribution table is appended to this exam. Use the information in Scenario 9.7. What is the EOQ for these papers? less than or equal to 3,000 units O greater than 3,000 units but less than or equal to 4,000 units O greater than 4,000 units but less than or equal to 5,000 units O greater than 5,000 units

Explanation / Answer

Daily demand = 300 units

Number of days in a year = 200 days

Annual demand (D) = 300 x 200 = 60000 units

Ordering cost (S) = $60

Holding cost (H) = $0.25

Economic order quantity = sqrt of (2DS / H)

= sqrt of [(2 x 60000 x 60) / 0.25]

= sqrt of 28800000

= 5366.56 or rounded to 5367 units

So the answer is greater than 5000 units

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

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