Under the Sea is an aquarium store in a trendy market area that frequently stock
ID: 448576 • Letter: U
Question
Under the Sea is an aquarium store in a trendy market area that frequently stocks out of key items customers want. The Fluval 303 pump, a high margin and profitable pump, is one of their best sellers, but it stocks out frequently. The following information is available regarding the pump’s sales. Demand = 10 units per week
Store operates 45 weeks/year Order cost = $30/order
Lead time = 3 weeks Item cost = $80/pump
Standard deviation of weekly demand = 4 units Inventory-holding cost = 15% per year
Desired service level = 90 percent Complete the following: 1. What is the EOQ? 2. What is the reorder point with safety stock rounded to the next highest number?
Explanation / Answer
Annual Demand (45 weeks * 10 units/ week) 450 Ordering Cost $ 30.00 Holding Cost ( $80 * 15%) $ 12.00 EOQ = 2AO / H where A = Annual Demand O = Ordering Cost per order H = Holding Cost per unit per annum EOQ = 2AO / H = (2 * 450 * 30) / 12 = 47.43 units or, 47 units b. Mean Demand 10 Standard Deviation of Daily Demand (SDd) 4 Lead Time (weeks) 3 Standard Deviation of Lead Time (SDl) = SDd * Lead Time = 4*3 = 6.93 6.93 Service Level Desired 90% Z Value at 90% 1.282 Safety Stock for 90% service level Z value * Standard Deviation (Demand Lead Time) (6.93 * 1.282) 9 Lead Time Demand ( Lead Time * Avg Demand) 30 Reorder Point = Lead Time Demand + Safety Stock 39
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