3. Sam\'s Cat Hotel operates 52 weeks per year, 6 days per week, and uses a revi
ID: 384213 • Letter: 3
Question
3. Sam's Cat Hotel operates 52 weeks per year, 6 days per week, and uses a review system. It purchases kitty litter for $11.70 per bag. The following information is available about these bags. (20) Demand-90 bags/week Order cost-$54/order Annual holding cost-27% of cost Lead time-3 weeks (18 working days) Current on-hand inventory is 320 bags. a. What is the EOQ? What would be the average time between orders (in weeks)? b. What should R be? c. An inventory withdrawal of The store currently uses a lot size of 500 bags (i.e., Q-500). What is the annual holding cost of this policy? Annual ordering cost? I cost saved by shifting from the 500-bag lot size to the EOQ?Explanation / Answer
Annual demand, D = 90*52 = 4680
Order cost, S = $ 54
Holding cost, H = 11.7*27% = 3.159
Average daily demand, d = 90/6 = 15
Lead time, L = 18 days
a) EOQ = (2SD/H) = (2*54*4680/3.16) = 400
Average time between orders = (Q/D)*52*6 = 26.7 days
b) R = d*L = 15*18 = 270
c) Inventory position = 320 - 40 = 280
Inventory position is greater than R, therefore, it is NOT time to order.
d) With Q = 500. Annual holding cost = (Q/2)*H = (500/2)*3.159 = 780
Annual ordering cost = (D/Q)*S = (4680/500)*54 = 505
e) Total annual cost of EOQ policy = (D/Q)*S + (Q/2)*H = (4680/400)*54 + (400/2)*3.159 = 1264
Total cost of current policy of Q=500 = 780+505 = 1285
Annual cost saving by shifting to EOQ policy = 1285 - 1264 = $ 21
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.