Sam\'s Cat Hotel operates 52 weeks per year, 6 days per week, and uses a continu
ID: 454282 • Letter: S
Question
Sam's Cat Hotel operates 52 weeks per year, 6 days per week, and uses a continuous review inventory system. It purchases kitty litter for $13.00 per bag. The following information is available about these bags: followsDemandequals=95 bags/week followsOrder costequals=$58.00/order followsAnnual holding costequals=35 percent of cost followsDesired cycle-service levelequals=80 percent followsLead timeequals=2 weeks (12 working days) followsStandard deviation of weekly demandequals=15 bags followsCurrent on-hand inventory is 320 bags, with no open orders or backorders.
a. Suppose that the weekly demand forecast of 95 bags is incorrect and actual demand averages only 75 bags per week. How much higher will total costs be, owing to the distorted EOQ caused by this forecast error? The costs will be $ nothing higher owing to the error in EOQ. (Enter your response rounded to two decimal places.)
b. Suppose that actual demand is 75 bags but that ordering costs are cut to only $9.00 by using the internet to automate order placing. However, the buyer does not tell anyone, and the EOQ is not adjusted to reflect this reduction in S. How much higher will total costs be, compared to what they could be if the EOQ were adjusted? The costs will be $ nothing higher owing to the error in EOQ.
Explanation / Answer
Price,P 13 $ Weekly Demand,W 95 per week Ordering Cost,C 58 per order Annual Holding Cost,H 4.55 (35% of 13) CSL 80% Lead Time 12 weeks SDWD 15 Inventory 320 A) When weekly demand W = 95 Annual Demand,D = 95*52 = 4940 Economic Order Quantiy,Q = SQRT(2*D*C/H) SQRT(2*4940*58/4.55) 354.88 Total Annual Cost,TC = (Q/2)*H + (D/Q)*C+D*P (354.88/2)*4.55+(4940/354.88)*58+4940*13 65834.72 When Weekly Demand,W = 75 Annual Demand,D = 75*52 = 3900 Economic Order Quantiy,Q = SQRT(2*D*C/H) SQRT(2*3900*58/4.55) 315.32 Total Annual Cost,TC = (Q/2)*H + (D/Q)*C+D*P (315.32/2)*4.55+(3900/315.32)*58+3900*13 52134.72 Owing to forecasting error, the extra cost that would be incurred is =65834.72-52134.72 $ 13700.00 $ B) When ordering Cost,C = 9$ and weekly demand,W = 75 Annual Demand, D = 75*52 = 3900 Economic Order Quantiy,Q = SQRT(2*D*C/H) SQRT(2*3900*9/4.55) 124.21 Total Annual Cost,TC = (Q/2)*H + (D/Q)*C+D*P (124.21/2)*4.55+(3900/124.21)*9+3900*13 51265.16 Owing to forecasting error, the extra cost that would be incurred is =65834.72-51265.16 $ 14569.56 $
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.