Jones Surgicenter uses 90,000 bags of IV solution annually. The optimal safety s

Question

Jones Surgicenter uses 90,000 bags of IV solution annually. The optimal safety stock (which is on hand initially) is 1,000 bags. Each bag costs the center $1.50, inventory carrying costs are 20 percent, and the cost of placing an order with the supplier is $15. a. What is the economic order quantity? b. What is the maximum inventory of IV solution bags? c. What is the center's average inventory of IV solution bags? d. How often must the center order (in days)? There are so many different answers posted., why? some say 12 days, some say 30 and some say 36.5, I am confused on all these

Explanation / Answer

a). EOQ = [(2 x F x S) / (C x P)]1/2

= [(2 x 15 x 90,000) / (0.2 x 1.50)]1/2 = [$2,700,000 / $0.3]1/2 = [9,000,000]1/2 = 3,000

b). Maximum Inventory = [EOQ + Safety Stock] x Cost

= [3,000 + 1,000] x $1.50 = $6,000

c). Average Inventory = [EOQ/2] + Safety Stock

= [3,000/2] + 1,000 = 2,500 bags

Average Inventory (in dollars) = 2,500 x $1.50 = $3,750

d). frequency of order = 365/[S/EOQ]

= 365/[90,000/3,000] = 365/30 = 12.1, or 12 days.

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