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 >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) = 80 x 52 = 4160

Ordering cost (S) = $55 per order

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 Ordering cost with EOQ = (D /Q) S

= (4160/372)55

= $615.05

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