Purinnerds Dog Food is a very popular product at Kay Gnein\'s corner grocery. De

Question

Purinnerds Dog Food is a very popular product at Kay Gnein's corner grocery. Demand for this is and the total demand for the year is 1, 200 bags. The cost of placing an order is $50, while the holding per year. The store is open 300 days per year. Lead-lime for this is 8 days. (a) If Kay places 50 orders per year, what would her annual ordering and holding costs be? (b) If Kay wishes to minimize her total inventory cost, how many units should she order each time an order is placed? (c) What is the reorder point?

Explanation / Answer

1) holding cost = 0.5. * unit holding cost*(annual demand/no. Of orders)

Holding cost = 0.5*3*1200/50 =$36

Ordering cost= orders*unit order cost = 50*50 = 2500

B) economic order quantity= SQUARE ROOT OF {2*demand*order cost/holding cost)

Eoq = sqrt(2*1200*50/3) = sqrt(4000) = 63.25 units company should order.

C)

Reorder point = demand during lead time = 1200*8/300 = 32 units

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