Jane distributes mugs from a supplier in Ireland. The average demand for a popul
ID: 360643 • Letter: J
Question
Jane distributes mugs from a supplier in Ireland. The average demand for a popular mug is 400 a day. It costs $26 to place an order each time and there is an average 12 day lead-time. The holding cost for a mug is 24% of the items cost of $18 and the company likes to maintain a 91% service level. Sigma is 540 mugs. Jane keeps her store open 210 days a year.
If Jane ordered the most economical quantity possible, what will her total annual costs be?
Greater than or equal to $4500 and less than or equal to $4600
Greater than or equal to $7400and less than or equal to $7500
Greater than or equal to $7600 and less than or equal to $7700
Greater than or equal to $4300 and less than or equal to $4400
What is Jane’s cost of safety stock if she is providing the indicated 91% service level. In other words, how much will it cost Jane a year for just the safety stock?
a)Greater than or equal to $2000 and less than or equal to $3000
Greater than or equal to $700 and less than or equal to $1000
Greater than or equal to $4200 and less than or equal to $5200
Greater than or equal to $3100 and less than or equal to $4100
a)Greater than or equal to $4500 and less than or equal to $4600
b)Greater than or equal to $7400and less than or equal to $7500
c)Greater than or equal to $7600 and less than or equal to $7700
d)Greater than or equal to $4300 and less than or equal to $4400
Explanation / Answer
Part a:
Daily demand
d
400
units
Days per year
210
Days
Annual Demand
A = 210 x d
84,000
Unit Cost
P
$18.00
Per unit
Holding cost
I
24%
Per unit per year
Ordering Cost
S
$26
Per order
EOQ
Q* = (2DS/(PI))
(2*84000*26 /(0.24*18))
= 1006
Units per order
Annual Holding Cost
AHC = Q/2 x P x I
1006 x 18 x 0.24/2
= $2,173
Per year
Annual Ordering
AOC = D/Q x S
84,000/1006
X 26
= $2,171
Per year
Total annual Cost
TC = AHC + AOC
$4,344
Per year
If Jane ordered the most economical quantity possible, what will her total annual costs be?
d)
Greater than or equal to $4300 and less than or equal to $4400
Part b:
Standard Deviation of annual demand (Assume the S.D is given for annual demand)
540
units
Lead time
L
12 days
= 12/210 year
= 0.0571 year
Service Level
CSL
91%
Standard Deviation of demand during LT
*(L)
540 x (0.0571) = 129.0849
For 91% service level
Z-score
=NORMSINV(0.91)
1.3405
Safety stock
SS = z**(L)
1.34.05x 129.0849 = 173.071
Units
Cost of carrying Safety stock
P*I*SS
$18*0.24*173.071
= $747.67
It will cost Jane, $747.67 to hold the safety stock
how much will it cost Jane a year for just the safety stock?
b)
Greater than or equal to $700 and less than or equal to $1000
`
Daily demand
d
400
units
Days per year
210
Days
Annual Demand
A = 210 x d
84,000
Unit Cost
P
$18.00
Per unit
Holding cost
I
24%
Per unit per year
Ordering Cost
S
$26
Per order
EOQ
Q* = (2DS/(PI))
(2*84000*26 /(0.24*18))
= 1006
Units per order
Annual Holding Cost
AHC = Q/2 x P x I
1006 x 18 x 0.24/2
= $2,173
Per year
Annual Ordering
AOC = D/Q x S
84,000/1006
X 26
= $2,171
Per year
Total annual Cost
TC = AHC + AOC
$4,344
Per year
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.