1. The daily demand for a compact car at a car dealer in Lexington is normally d
ID: 409957 • Letter: 1
Question
1. The daily demand for a compact car at a car dealer in Lexington is normally distributed with a mean of 1.6 car and a standard deviation of 0.4 car. The lead time to receive an order from the car manufacturer is 15 days. The sales manager is willing to accept no more than 2 percent risk of stockout during lead time. Find the reorder point. How much of this is safety stock? What is the service level?
2. Big Four Lumber store has an average finished-goods inventory of $36,318 million. If Big Four cost of goods sold is $307, 646 million/year, what is its annual inventory turnover?
Explanation / Answer
Q1) Average daily demand d = 1.6
Standard deviation = 0.4
Lead Time L = 15 days
Service level = 98 % as stockout level =2 % max=> z = 2.33
Safety stock = z**L = 2.33*0.4*15 = 3.61
Reorder point = d*L+SS =(1.6*15)+3.61 = 27.61 cars
Q2) Average Inventory = 36318 million $
COGS = 307646 million $/year
Annual Inventory Turnover = COGS/Average Inventory = 307646/36318 = 8.47
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