1) Demand for a product is normally distributed with average daily demand equal
ID: 2901438 • Letter: 1
Question
1) Demand for a product is normally distributed with average daily demand equal to 1500 units and the daily standard deviation of demand equal to 75 units. Lead time for the item is 3 days. To maintain a service level of 95% the company must hold ______ units as safety sock for this item.
2) Annual demand for a product is 40,000 units. The product is used at a constant rate over the 365 days the company is open every year. The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00. If the company orders according to the economic order quantity (EOQ) formula then its optimal order size for this product would
3) A product
Explanation / Answer
1) Service level = 95%
z= 1.644854
StdD over lead time = StdD*sqrt(lead Time)=75*sqrt(3)=129.9038
Safety Stock = z*StdD over lead time=213.6728
2) EOQ = sqrt(2*Ordeing Cost *annual Demand/holding cost per year)=sqrt(2*125*40000/2.5)=2,000 units
3)
Service level = 90%
z= 1.281552
StdD over lead time = Weekly StdD*sqrt(lead Time)=125*sqrt(4)=250
Safety Stock = z*StdD over lead time=320.3879 units
Reorder Point = AVerage Demand over lead time + Safety Stock = 2000*4 + 320.3879=8320.3879 units
5)
Service level = 95%
z= 1.644854
StdD over lead time = StdD*sqrt(lead Time)=50*sqrt(9)=150
Safety Stock = z*StdD over lead time=246.728 units
Reorder Point = AVerage Demand over lead time + Safety Stock = 500*9 + 246.728=4746.728 units
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