T-mart logistics manager needs to order repetitively for one of its staple items
ID: 335052 • Letter: T
Question
T-mart logistics manager needs to order repetitively for one of its staple items. The product demand rate is uncertain in nature, so he considers applying the EOQ-based Reorder Point Control for a Single Item under Uncertainties. The MONTLY demand for the product likely follows a normal distribution, with a mean of 100 units and standard deviation of 20 units. The item value is C=$10/unit, while the inventory carrying charge is I = 20%/year based on the value of the item. Ordering cost is S=$40/order, with a fixed lead time LT=0.25 month. Based on this method, the appropriate reorder quantity (Q) should be
a. 100 units
b. 120 units
c. 138 units
d. 200 units
e. 219 units
Explanation / Answer
Monthly demand = 100 units
Annual demand (D) = monthly demand x 12 months = 100 units x 12 = 1200 units
Carrying cost (I) = 20% of cost = 20% of $10 = $2
Ordering cost (S) = $40
Reorder quantity(Q) = sqrt of (2DS / I)
= sqrt of [(2 x 1200 x 40)/2]
= sqrt of 48000
= 219 units
So the answer is option e
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