A distributor of large appliances needs to determine the order quantities and re

Question

A distributor of large appliances needs to determine the order quantities and reorder points for the various products it carries. The following data refer to a specific refrigerator in its product line: Cost to place an order $ 75 Holding cost 15 percent of product cost per year Cost of refrigerator $ 540 each Annual demand 720 refrigerators Standard deviation during lead time 36 refrigerators Lead time 11 days Consider an even daily demand and a 365-day year. a. What is the economic order quantity? (Round your answer to the nearest whole number.) Economic order quantity refrigerators b. If the distributor wants a 90 percent service probability, what reorder point, R, should be used? (Use Excel's NORMSINV() function to find the correct critical value for the given -level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.) Reorder point refrigerators

Explanation / Answer

Reorder Point CalculationA distributor of large appliances needs to determine the order quantities and reorderpoints for the various products it carries. The following data refer to a specificrefrigerator in its product line:

Cost to place an order$75

Holding cost 15 percent of product cost per year

Cost of refrigerator$540 each

Annual demand 720 refrigerators

Standard deviation during lead time 36 refrigerators

Lead time 11 days

Consider an even daily demand and a 365-day year.a)

What is the economic order quantity?

2DS/H = 2 ( 540 X75) / 0.15 X 720 = 750

If the distributor wants a 90 percent service probability,

what reorder point, R, shouldbe used?=sLT= 10 refrigerators.

The z value corresponding to 97% is z = 1.90.

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