Question 55 3 pts GROCERY STORE PROBLEM: A local retailer of pet food faces dema
ID: 435244 • Letter: Q
Question
Question 55 3 pts GROCERY STORE PROBLEM: A local retailer of pet food faces demand for one of its items at a constant rate of 25,000 bags per year. It costs them $15 to process an order and $3 per bag per year to carry the item in stock. The stock is received three working days after an order is placed. Assume 250 working days in a year and no backordering. What is the demand during lead time assuming that there is no variability? O cannot be calculated with the given information ? 225 O 400 O 300 525Explanation / Answer
(55) Given values:
Annual demand (D) = 25,000 bags per year
Ordering cost (Co) = $15
Carrying cost (Cc) = $3
Lead time (L) = 3 days
Number of working days = 250 days
Solution:
Demand during lead time is calculated as,
Demand during lead time = Average daily demand x Lead time
Demand during lead time = (Annual demand / Number of working days) x Lead time
Putting the given values in the above formula, we get,
Demand during lead time = (25000 / 250) x 3
Demand during lead time = 300
Answer: (d) 300
(56) From the given information, Optimal order quantity (Q*) is calculated as,
Q* = SQRT [(2 x D x Co) / Cc]
Putting the given values in the above formula, we get;
Q* = SQRT [(2 x 25000 x $15) / $3]
Optimal order quantity, Q* = 500 bags
Total Inventory cost is calculated as,
Total Inventory cost = Total Ordering cost + Total Carrying cost
Total Inventory cost = [(D / Q*) x Co] + [(Q*/2) x Cc]
where,
D = Annual demand
Q* = Optimal Order quantity
Co = Ordering cost
Cc = Carrying cost
Putting the given values in the above formula, we get,
Total Inventory cost = [(25000 / 500) x 15] + [(500/2) x 3]
Total Inventory cost = $750 + $750
Total Inventory cost = $1,500
Answer: (C) 1500
(57) Reorder point (ROP) is calculated as,
ROP = (Annual demand / Number of working days) x Lead time
Putting the given values in the above formula, we get,
ROP = (25000 / 250) x 3
Reorder point = 300
Answer: (b) 300
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