Suppose that the R&B; Beverage Company has a soft drink product that shows a con

Question

Suppose that the R&B; Beverage Company has a soft drink product that shows a constant annual demand rate of 3, 500 cases. A case of the soft drink costs R&B; $2. Ordering costs are $22 per order and holding costs are 20% of the value of the inventory. R&B; has 250 working days per year, and the lead time is 5 days. Identify the following aspects of the inventory policy: a. Economic order quantity. If required, round your answer to two decimal places. b. Reorder point. If required, round your answer to the nearest whole number. c. Cycle time. If required, round your answer to two decimal places. d. Total annual cost. If required, round your answer to two decimal places.

Explanation / Answer

a. Economic order quantity = sqrt(2 x annual demand x ordering cost / holding cost)

= sqrt (2 x 3500 x 22/0.80) = 438.7482

b. Reorder point = Average daily usage x Lead time

= (3500/250) x 5

=70 units

c. Cycle time Q= 438.7482

D is the demand which is 3,500

(Q/D ) * 250 = (438.7482 / 3500) x 250

= 31.339 days or about 31 days

d.Total annual cost = Total annual demand x Cost per unit + Ordering cost + Storage cost

= (3500x2)+ (10x22)+(3500x0.80)

= 10020

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