Given the following information, formulate an inventory management system. The i
ID: 421528 • Letter: G
Question
Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year.
Determine the order quantity and reorder point. (Use Excel’s NORMSINV( ) function to find your z-value and then round that z-value to 2 decimal places. Do not round any other intermediate calculations. Round your final answers to the nearest whole number.)
Determine the annual holding and order costs. (Do not round any intermediate calculations. Round your final answers to 2 decimal places.)
Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year.
Explanation / Answer
Optimal order quantity
2328 units
Reorder point
1491 units
Optimal order quantity (EOQ) = ? (( 2*D*O ) / C)
Here, D = Annual Demand = 23,500
O = Order cost = 218
C = Carrying cost = 27% of item cost
Item cost = 7
So, C = 27% of 7 = 1.89
Optimal order quantity (EOQ) = ? ((2*23,500*218) / 1.89)
= 2328 units approximately
Reorder point –
Reorder point= d L + Z s L
d = Average demand = 470 per week
L = Lead time = 3 weeks
Z=2.33 from NORMSINV in excel
s L = ? (L * Standard deviation * Standard deviation) = ?(3*20*20) = 34.64
Reorder point= (470*3) + (2.33*34.64)
= 1410+80.71
= 1491 units
b.
Holding cost
$2199.96
Ordering cost
$2200.60
Holding cost = (EOQ / 2) *Carrying cost
= (2328/2) * 1.89
= $ 2199.96
Ordering cost = (Annual Demand / EOQ) * Ordering cost
=( 23,500 / 2328) * 218
= $ 2200.60
Optimal order quantity
2328 units
Reorder point
1491 units
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