Gentle Ben\'s Bar and Restaurant uses 7,400 quart bottles of an imported wine ea

Question

Gentle Ben's Bar and Restaurant uses 7,400 quart bottles of an imported wine each year. The effervescent wine costs $5 per bottle and is served only in whole bottles because it loses its bubbles quickly. Ben figures that it costs $10 each time an order is placed, and holding costs are 30 percent of the purchase price. It takes two weeks for an order to arrive. Weekly demand is 148 bottles (closed two weeks per year) with a standard deviation of 30 bottles. Ben would like to use an inventory system that minimizes inventory cost and will provide a 90 percent service probability. a. What is the economic quantity for Ben to order? (Round your answer to the nearest whole number.) Economic order quantity bottles b. At what inventory level should he place an order? (Use Excel's NORMSINVO function to find the correct critical value for the given -level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.) Inventory level bottles

Explanation / Answer

Demand (D) = 7400

Order cost (S) = 10

Holding cost (H) = Price*30% = 5*30% = 1.5

a) EOQ = sqrt(2*D*S/H) = sqrt(2*7400*10/1.5) = 314

b)

Weekly demand (d) = 148

Standard deviation (SD) = 30

Lead time (LT) = 2 weeks

Service level = 90%. z value or alpha using NORMSINV = 1.28

Re-order point = d*LT + z*SD*sqrt(LT) = 148*2 + 1.28*30*sqrt(2) = 350

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