Problem 2 MUST SHOW ALL WORK--SECOND REQUEST AS WORK WAS NOT DETAILED. PLEASE SH
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Problem 2 MUST SHOW ALL WORK--SECOND REQUEST AS WORK WAS NOT DETAILED. PLEASE SHOW DETAILED WORK
Chapter 9: A store has collected the following information on one of its products:
Demand = 6,760 units/year
Standard deviation of weekly demand = 18 units
Ordering costs = $40/order
Holding costs = $2/unit/year
Cycle-service level = 90%
Lead-time = 3 weeks
Number of weeks per year = 52 weeks
If the firm uses the continuous review system to control the inventory, what would be its order quantity and reorder point?
Assume that the firm decided to change to the periodic review system to control the item’s inventory. The time between reviews, P, is calculated using the EOQ model. For the most recent review, an inventory clerk checked the inventory of this item and found 500 units. There were no scheduled receipts or backorders at the time. Determine how many units should the firm order.
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6 answers
Anonymous
6 answers Top Subjects: Operations Management
economic order quantity = under root of 2*annual demand*unit cost 0f purchase/ cost of holding = underroot of 2*6760*40/2 = 520 units
weekly demand = 6760/52 = 130 units
demand in 3 weeks = 390 units
reorder point = expected demand during lead time + safety stock = 3*130+ ss
Explanation / Answer
Annual Demand 6760 Ordering Cost $ 40.00 Holding Cost $ 2.00 EOQ = 2AO / H where A = Annual Demand O = Ordering Cost per order H = Holding Cost per unit per annum EOQ = 2AO / H = (2 * 6760 * 40) / 2 = 520 units b. Mean Demand (6760/52) 130 Standard Deviation of Daily Demand (SDd) 18 Lead Time (weeks) 3 Standard Deviation of Lead Time (SDl) = SDd * Lead Time = 18*3 = 31.18 31.18 Service Level Desired 90% Z Value at 95% 1.282 Safety Stock for 95% service level Z value * Standard Deviation (Demand Lead Time) (31.18 * 1.282) 40 Lead Time Demand ( Lead Time * Avg Demand) 390 Reorder Point = Lead Time Demand + Safety Stock 430 c. In a periodic review system, finding target inventory T is given as: P = (6760/520) = 13 weeks L = 3 weeks Safety stock = z * std Dev (P,L) Std Dev (P,L) = Std Dev Demand * P+L = 18 * 13+3 = 72 units Safety stock = 1.282* (72) = 92 units T = Average demand during the protection interval + Safety stock - Inventory in hand T = 130(13 + 3) + 92 - 500 T = 1,672 units
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