12.45 Mr. Beautiful, an organization that sells weight training sets, has an ord

Question

12.45 Mr. Beautiful, an organization that sells weight training sets, has an ordering cost of $40 for the BiB-I set. (BB-I stands for Body Beautiful Number 1) The carrying cost for BB-t is S5 per set per year. To meet demand, Mr. Beautiful orders large qpiantitios ef BB-1 seven times a year. The stockout cost for BB-1 s estimated to be $50 per set. Over the past several years, Me Besstiful hax observed the following demand during the lead time for BB DEMAND DURING LEAD TIMEPRORAS 40 50 60 70 80 90 1.0

Explanation / Answer

Demand Probability Carrying cost $                                   5.00 per set per year 40 0.1 Ordering cost $                                 40.00 per set per year 50 0.2 Stock out cost $                                 50.00 per set 60 0.2 ROP 60 70 0.2 Annual stockout cost = Sum of units short x Probability x Stockout cost per unit x Number of orders per year. 80 0.2 No. of orders 7 90 0.1 Safety Stock Additional Carrying Cost (in $) Annual stockout Cost (in $) Total Cost 30 $                               150.00 0 $                                150.00 20 $                               100.00 10* 0.1*50*7 = 350 $                                450.00 10 $                                 50.00 10*0.2*50*7 + 20*0.1*50*7 = 1400 $                              1,450.00 0 $                                      -   10*0.2*50*7+20*0.2*50*7+30*0.1*50*7 = 3150 $                              3,150.00 Minimum total cost is for safety stock of 30

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