Wood County Hospital consumes 1,000 boxes of bandages per week. The price of ban
ID: 421365 • Letter: W
Question
Wood County Hospital consumes 1,000 boxes of bandages per week. The price of bandages is $36 per box, and the hospital operates 52 weeks per year. The cost of processing an order is $12 and the cost of holding one box for a year is 20 percent of the value of the material.
a. The hospital orders bandages in lot sizes of 700 boxes. What extra cost does the hospital incur, which it could save by using the EOQ method?
b. Demand is normally distributed, with a standard deviation of weekly demand of 100 boxes. The lead time is 2 weeks. What safety stock is necessary if the hospital uses a continuous review system and a 97 percent cycle-service level is desired? What should be the reorder point?
c. If the hospital uses a periodic review system, with P = 2 weeks, what should be the target inventory level, T?
Explanation / Answer
(a) EOQ for the process = [ 2x 52x 1000x12 / 7.2]1/2 = 416
Cost for previous case
= 700/2 x7.2 + 52000/700 x12 = 2520+ 900 = 3420
Cost in case 2
= 416 /2 x 7.2 +52000/416 x12 = 1497.6 +1500 = 2997.6
Cost saved = 3420-2997.6 = 422.4
2.
ROP = demand duing lead time + safety stock
= 1000x2 + z x sigma ( Lead time)1/2
= 2000+ 1.88 x 100x 1.41
= 2265.08
Safety stock = 265.08
3.
In case of periodic review system
T = demand ( lead time +P) + z x sigma x ( Lead time +p)1/2
= 1000 ( 2+2) + 1.88 x100 x2
=4000+376 = 4376
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