Deep Six Seafood, a restaurant that’s open 360 days a year, specializes in fresh
ID: 422738 • Letter: D
Question
Deep Six Seafood, a restaurant that’s open 360 days a year, specializes in fresh Maine lobsters at a cost of $12.50 each. Air freight charges have increased significantly and it now costs Deep Six $50 to place an order. Because the lobsters are shipped live in a saltwater tub, the ordering cost is not affected by order sizes. The cost to keep a lobster alive until needed runs about $0.02 per day. The demand for lobsters during the 1-day lead time is as follows:
Lead-time Demand:
Probability:
0
.10
1
.30
2
.25
3
.20
4
.05
5
.10
Deep Six would like to reconsider its order size. What would you recommend as an EOQ?
35
40
69
245
None of the above.
4 points
QUESTION 23
Using the information in the previous problem, if Deep Six insists on maintaining a safety stock of 2 lobsters, at what reorder point should Deep Six place another order?
5
12
14
35
40
Lead-time Demand:
Probability:
0
.10
1
.30
2
.25
3
.20
4
.05
5
.10
Explanation / Answer
Average daily demand
= Sum ( Probability x Corresponding demand )
= 0.1 x 0 + 0.3 x1 + 0.25 x 2 + 0.2 x 3 + 0.05 x 4 + 0.1 x 5
= 0 + 0.3 + 0.50 + 0.60 + 0.20 + 0.5
=2.1
Annual demand = D = 2.1/ day x 360 = 756
Ordering cost = Co = $50
Annual unit inventory cost = Ch = $0.02 / day x 360 days = $7.2
Therefore , Economic order quantity (EOQ )
= Square root ( 2 x Co x D / Ch )
= Square root ( 2 x 50 x 756 / 7.2 )
= 102.46 ( 102 rounded to nearest whole number )
ANSWER : e ) NONE OF THE ABOVE
Reorder point
= Average daily demand x Lead time ( days ) + Safety stock
= 2.1 x 1 + 2
= 2.1 + 2
= 4.1 ( 5 rounded to next higher whole number )
REORDER POINT : a ) 5
ANSWER : e ) NONE OF THE ABOVE
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.