(Best Buy Part B) At a Best Buy store, the forecast for the weekly demand of a M
ID: 352996 • Letter: #
Question
(Best Buy Part B) At a Best Buy store, the forecast for the weekly demand of a Motorola cell phone is 300. Demand forecasts are updated weekly and the unit time is one week. Motorola takes 2 weeks to supply an order and the setup cost is $400 per order. The holding cost rate is 10% and one cell phone costs $50.
The store manager now finds that the weekly demand is highly random and normally distributed with a mean of 300 and a standard deviation of 200. Best Buy is targeting a service level of 97.73%.
(Best Buy Part B)
(a) What is the cycle inventory (or half of order quantity)? [Answer format: integer]
(b) What is the average inventory (or inventory held on average between orders)? [Answer format: integer]
Write your answer(s) as 123, 4567
Explanation / Answer
Given
Average annual Demand= 300 per week = 300*52 = 15600 / yr
Setup cost (S) = $400 / order
Cost of a cellphone = $50
Holding cost = 10% of 50 = $5
EOQ = ((2*D*S)/H)^0.5
=((2*15600*400)/5)^0.5
= 1579.87=1,580
Cycle Inventory= EOQ/2 = 1580/2 = 790
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