Sam\'s Cat Hotel operates 82 weeks per year. 5 days per week and uses a continuo

Question

Sam's Cat Hotel operates 82 weeks per year. 5 days per week and uses a continuous revilew inventory system it purchases kity itter for $12 00 per bag The tollowing itormation is avaibe about these bags. Refer to the standard nomal table for z-values > Demand 85 bags/week Order cost $55/order >Annual holding cost = 25 percent of cost Desired cycle-service level 90 percent - Lead time 2 week(s) (10 working days) Standard deviation of weekly demand 20 bags Current on-hand inventory is 315 bags, with no open orders or backorders a. What is the E0Q? Sam's optimal order quantty is bags (Enter your response rounded to me nearest whole number) What would be the average time between orders (in weeks)? The average time between orders is weeks (Enter yourresponeerounded to one decima,peace b. What shoud R be? Click to select your anserts

Explanation / Answer

a) Average annual demand (D)= 52*85 = 4420 Bags

Ordering Cost ( S) = $55

Annual Holding cost (H)= 25% of $12 = $3

Therefore, EOQ = Sqrt( 2*D*S/H) = 402.57 ~403 Bags

Sam's optimal order quantity is 403 Bags

Average time between orders = (EOQ/D)*52 = (403/4420)*52 = 4.74 weeks

b) In the continous review system, the reorder point for a constant demand and constant lead time is:

R = Average demand during lead time = 85*2 = 170 bags

c) If the inventory position is less than the Reorder point, then we have to reorder otherwise no need to reorder.

In the given case, the inventory position (IP) = On-Hand Inventory+Scheduled receipts-Backorders = 315-10 {Since there is no open/back orders} = 305.

Since IP>R; we don't need to reorder in this case.

d) The annual holding cost = (Q/2)*H = (490/2)*3 = $735

Annual ordering cost = (D/Q)*S = (4420/490)*55 = $496.1

The answer to the MCQ is option B. As Ordering cost is small and holding cost is high as seen above.

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