Appliance for Less is a local appliance store. It costs this store $25.35 per un
ID: 2651823 • Letter: A
Question
Appliance for Less is a local appliance store. It costs this store $25.35 per unit annually for storage, insurance, etc., to hold microwave in their inventory. Sales this year are anticipated to be 261 units. Each order costs $81. The company is using Economic Order Quantity model in placing the orders.
It takes approximately 4 days to receive an order after it has been placed. If the store insists on a 3 days safety stock (assume 365-days a year), what should the inventory level be when a new order is placed?
Explanation / Answer
A = Annual demand = 261 units
O = Ordering cost per order = $81
C = Carrying cost per unit = $25.35
EOQ = (2AO/C)^1/2
= (2×261×81/25.35)^1/2
= 41 units
Safety stock = (A / 365 days) × Safety days = (261/365) × 3 = 2
Inventory level at the time of a new order is placed = Average units × Lead time + Safety stock
= (261/365) × 4 + 2
= 5 units (Answer)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.