Second time posting this. Be clear with your answer please Given the following i

Question

Second time posting this. Be clear with your answer please Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year Item cost Order cost Annual holding cost (%) Annual demand Av Standard deviation of weekly Lead time Service probability 7.00 $243.00 20 per weelk demand 1 week 95% 32% of item cost 22,100 demand 442 per week a. Determine the order quantity and reorder point (Use Excel's NORMSINV) function to find your z value and then round that z-value to 2 decimal places. Do not round any other intermediate calculations. Round your final answers to the nearest whole number.) Optimal order quantity Reorder point 2190 units 462 units b. Determine the annual holding and order costs. (Do not round any intermediate calculations. Round your final answers to 2 decimal places.) Holding cost Ordering cost 2453 2452 O c. Assume a price break of $50 per order was offered for purchase quantities of 2.200 units per order. If you took advantage of this price break, how much would you save annually? (Do not round intermediate calculations (including number of setups per year). Round your final answer to decimal places.) Annual savings

Explanation / Answer

Roder point is given as Re-order point = Average Lead Time*Average Demand + Service Level*(Avg. Lead Time*Standard Deviation of Demand2 + Avg. Demand2*Standard Deviation of Lead Time2)

= 1*442 + .95 * sqrt[1*20+442*{sqrt(1)}] : Note Standard Deviation of Lead Time2 = sqrt (lead time)

= 462.4195

The price break of $ 50 means an additional volume based discount is offered by the vendor if the order size in each PO is greater than 2200 units.

From part A of the answer we already have economic order quantity as 2190, thus if we increase the order size by 10 pcs, we would get additional discount of $ 50.

From part A of the answer we would calculate the total cost at EOQ

= Purchase cost + holding cost + Ordering cost

= 22100*7 + 2453 + 2452 = $ 159605

Now we need to find 3 new values a) new holding cost b) new ordering cost c) the total savings due to this additional $ 50 discount.

So total savings = 159605 – 159094 = $ 514

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