Gentle Ben\'s Bar and Restaurant uses 4,900 quart bottles of an imported wine ea

Question

Gentle Ben's Bar and Restaurant uses 4,900 quart bottles of an imported wine each year. The effervescent wine costs $8 per bottle and is served only in whole bottles because it loses its bubbles quickly. Ben figures that it costs $5 each time an order is placed, and holding costs are 35 percent of the purchase price. It takes four weeks for an order to arrive. Weekly demand is 98 bottles (closed two weeks per year) with a standard deviation of 50 bottles. Ben would like to use an inventory system that minimizes inventory cost and will provide a 98 percent service probability.

What is the economic quantity for Ben to order? (Round your answer to the nearest whole number.)

At what inventory level should he place an order? (Round your answer to the nearest whole number.)

What is the economic quantity for Ben to order? (Round your answer to the nearest whole number.)

Explanation / Answer

Economic order quantity = square root of (2*annual demand*ordering cost/inventory carrying cost per unit per annum}) =square root of (2*4900*5/8*0.35) = 132 units

Reorder point = safety stock + coverage*average demand = (98*4)+(0.98*98) = 488 units

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