A product with an annual demand of 900 units has C $34.00 and C $6. The demand e
ID: 382400 • Letter: A
Question
A product with an annual demand of 900 units has C $34.00 and C $6. The demand extitits some variablity such that the lead-time demand follows normal probability distribution with -25 and o-s. Note: Use Appendix B to identify the areas for the standard normal distribution a. what is the recommended order quantity? Round your answer to the nearest whole number. b. what are the reorder point and safety stock if the firm desires at most a 7% probabity of stock-out on any given order cycle? if required, round your answers to the nearest whole number Record point- Safety stock- C. If a manager sets the reorder point at 31, what is the probabilty of a stock out on any oiven order cydle? I required, round your answer to four decimal places P(Stockout/cydle) - d your answer to the nearest whole number Number of Orders - PreiousExplanation / Answer
Annual demand = 900 units
Ordering cost = $ 34
Holding cost = $6
Recommended order quantity = EOQ = Sqrt (( 2* Annual demand * ordering cost)/holding cost)
= sqrt( 2*900*34/6) = 100.995 = 101 units
(B)
Service level = 100 % - probability of stock out required = 100 -7 = 93%
z value corresponding to 93% = 1.48 ( from z table)
Safety stock = Z value * sigma
Given ,
Mean = 25
Sigam = 5
Safety stock = 5* 1.48 = 7.4 = 8 units
Reorder point = Mean + saftey stock = 25 + 8 = 33 units
(C)
Reorder point = 31 units
safety stock = Reorder point - mean = 31 -25 = 6 units
Z level = safety stock / sigma = 6/5 = 1.2
Probability (at Z = 1.2) = 0.3849
Service level (from Z table) = 0.5 + 0.3849 = 0.8849 = 88.5%
P(stock out) = 1-0.8849 = 0.1151 = 11.5%
No. of orders = Annual demand / quantity ordered = 900/101 = 9 orders
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.