Given the following information, formulate an inventory management system. The i

Question

Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year Item cost Order cost Annual holding cost (%) Annual demand Average demand $ 8.00 $298.00 29 28,100 Standard deviation of weekly demand Lead time Service probability 25 per week 4 weeks 98% %of item cost 562 per week a. Determine the order quantity and reorder point. (Use Excel's NORMSINV) function to find the correct critical value for the given a-level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.) Optimal order quantity Reorder point units units b. Determine the annual holding and order costs. (Round your answers to 2 decimal places.) Holding cost Ordering cost c. Assume a price break of $50 per order was offered for purchase quantities of 2,100 or more units per order. If you took advantage of this price break, how much would you save annually? Round your answer to 2 decimal places.) Annual savings

Explanation / Answer

Annual demand, D = 28100

Order cost, S = 298

Holding cost, H = 8*29% = 2.32

a) Order quantity (EOQ) = SQRT(2DS/H) = SQRT(2*28100*298/2.32) = 2687 units

z = NORMSINV(0.98) = 2.05

Reorder point = Weekly demand * Lead time + z * Std dev * SQRT(lead time)

= 562*4 + 2.05*25 * SQRT(4)

= 2351

b)

Safety stock = z*Std dev * SQRT(Lead time) = 2.05*25(SQRT(4) = 103

Annual holding cost = (Q/2 + Safety stock) * H

= (2687/2 + 103)*2.32

= $ 3355.88

Ordering cost = (D/Q)*S

= (28100/2687)*298

= 3116.41

c) EOQ is 2687 , which is greater then the threshold (2100) for price break.

Total cost with price break = (28100/2687)*(298-50) + 3355.88 (holding cost)

= 5949.40

Annual savings = (3355.88 + 3116.41) - 5949.40 = $ 522.89

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

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