STEVE\'S TIRE AND LUBE: HOW MUCH IS THE TOTAL ANNUAL COST OF ORDERING AND HOLDIN

Question

STEVE'S TIRE AND LUBE:

HOW MUCH IS THE TOTAL ANNUAL COST OF ORDERING AND HOLDING INVENTORY USING THE CONTINUOUS REVIEW SYSTEM?

DATA Products, retail sales price per week($), volume used per week(units), volume sold per week (units) high performance motor oil: $6.50, 430, 60 Oil filter: $ 15.00, 86, 23 wiper blades: $20.00, 8,18 washer fluid: $8.50, 12, 50 Antifreeze: $10, 15, 5 Battery: $55, 9, 2 plugs: $17.50, 40, 10 freshener: 9.99, n/a, 25 helmet: 35, n/a, 20 frames: 12, n/a, 20

MORE DATA: products, safety stock(SS) (units), reorder point (units) high performance motor oil: SS= 130, reorder = 620 Oil filter: SS= 30, reorder= 139 windsheild blades SS= 7, reorder= 33 windsheild washer fluid SS= 17, reorder=79 antifreeze SS=3, reorder= 23 battery SS=3, reorder=14 spark plugs SS=14, reorder=64 car freshener SS=7, reorder= 32 rearview mirror SS=6, reorder=26 license plate SS=6, reorder= 26

purchase cost = 50% sales price

SD of demand is 10% of total weekly demand Under the Continuous Review Systems the general cost equation is given as under: T

otal cost = Annual cycle inventory holding cost + Annual ordering cost + Annual safety stock holding cost

Working weeks per year = 51 weeks (the shop closes for one week in the winter)

Holding cost per unit = 30% of unit costs (there is virtually no theft of product) Delivery orders take about one week from the local supplier.

Explanation / Answer

Oil Oil filter Wiper blades Washer fluid Antifreeze Battery Plugs freshener Helmet Frames Mirror Plate A Retail sales price per week ($) 6.5 15 20 8.5 10 55 17.5 9.99 35 12 B Voume used per week (Units) 430 86 8 12 15 9 40 - - - C Volume sold per week (Units) 60 23 18 50 5 2 10 25 20 20 D Safety stock (units) 130 30 7 17 3 3 14 7 6 6 E Reorder point (units) 620 139 33 79 23 14 64 32 26 26 F Purchase cost (50% of saes price) 3.25 7.5 10 4.25 5 27.5 8.75 4.995 17.5 6 0 0 G SD of demand (10% of weekly demand) 6 2.3 1.8 5 0.5 0.2 1 2.5 2 2 0 0 H Annual Demand (C*51) 3060 1173 918 2550 255 102 510 1275 1020 1020 0 0 I Holding cost per unit 0.975 2.25 3 1.275 1.5 8.25 2.625 1.4985 5.25 1.8 0 0 J Number of orders (H/E) 4.935484 8.438849 27.81818 32.27848 11.08696 7.285714 7.96875 39.84375 - - 0 0 K Lead time 1 week 1 week 1 week 1 week 1 week 1 week 1 week 1 week 1 week 1 week 1 week 1 week L Annual cycle inventory holding cost 1491.75 1319.625 1377 1625.625 191.25 420.75 669.375 955.2938 2677.5 918 0 0 M Annual ordering cost (10*J) 50 80 270 330 120 80 80 400 N Annual safety stock holding cost (D/2*I) 63.375 33.75 10.5 10.8375 2.25 12.375 18.375 5.24475 Note: Ordering cost is not given in question, it is assumed as $10 per order

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