Petromax Enterprises uses a continuous review inventory control system for one o

Question

Petromax Enterprises uses a continuous review inventory control system for one of its SKUs. The following information is available on the item. The firm operates 48 weeks in a year. Refer to the

standard normal table.for z-values.

Demand = 78,000 units/year

Ordering cost = $38.00/order

Holding cost = $4.50/unit/year

Average lead time = 99 weeks

Standard deviation of weekly demand = 200 units

a. The economic order quantity for this item is ____ units.

(Enter your response rounded to the nearest whole number.)

b. If Petromax wants to provide a 90% service level, the safety stock is ____ units (enter your response rounded to the nearest whole number) and the reorder point is ____ units

Explanation / Answer

Part a)

economic order quantity = sqrt ( 2* demand * Ordering cost / holding cost) = sqrt ( 2 * 78000 * 38 / 4.5) = 1147.75

So economic order quantity ~ 1148

Part b)

z for 90% of service level = 1.2815 (use excel formula of norm.s.inv(0.9))

Safety stock = Z * Std deviation = 1.2815 * 200 = 256.3

So safety Stock ~ 256

Reorder point = Demand per weak * Lead time + safety stock

Demand per week = 78000 /48 = 1625

ROP = 1625 * 99 + 256.3 = 161131.3

OR use can use excel formula as =NORMINV(0.9,1625*99,200)

So reorder point ~ 161131

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.