Sam\'s Cat Hotel operates 52 weeks per year, 7 days per week, and uses a continu

Question

Sam's Cat Hotel operates 52 weeks per year, 7 days per week, and uses a continuous review inventory system. It purchases kitty litter for $11.00 per bag. The following information is available about these bags. Refer to the standard normal table for z-values. >Demand 80 bags/week >Order cost $55/order Annual holding cost 30 percent of cost Desired cycle-service level 90 percent >Lead time 4 week(s) (28 working days) >Standard deviation of weekly demand 10 bags >Current on-hand inventory is 310 bags, with no open orders or backorders.

Explanation / Answer

Weekly demand = 80 bags

Number of weeks per year = 52 weeks

Annual demand (D) = weekly demand x number of weeks

= 80 x 52

= 4160 bags

Ordering cost (S) = $55 per order

Cost = $11 per bag

Holding cost (H) = 30% of cost = 30% of $11 = $3.3

Economic order quantity (Q) = sqrt of(2DS / H)

= sqrt of [(2 x 4160 x 55) / 3.3]

= 372.38 or rounded to 372 bags

Annual holding cost with EOQ = (Q/2)H

= (372/2)3.3

= $613.8

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