For an inventory item, suppose the demand is 1210/month, lead time is 2.5 weeks,

Question

For an inventory item, suppose the demand is 1210/month, lead time is 2.5 weeks, and safety stock is 9. The item cost is $16, the unit ordering cost is $342/order, and the unit carrying cost is $1.30/item/quarter.

Question 6. Find the optimal inventory policy that minimizes total cost for a continuous review system.

(A) ( 707 , 1382 )

(B) ( 5 weeks , 798 )

(C) ( 5 weeks , 1382 )

(D) (698 , 798 )

(E) none of the above

Question 7. Find the optimal inventory policy that minimizes total cost for a periodic review system.

(A) ( 707 , 1382 )

(B) ( 5 weeks , 798 )

(C) ( 5 weeks , 1382 )

(D) (698 , 798 )

(E) none of the above

Explanation / Answer

Q6. (A) ( 707 , 1382 )

In a continuous review system, order policy is defined as (R,Q), where R is the Reorder point and Q is the Lot size. (optimal order quantity)

R = demand during lead time + safety stock

Annual Demand = 1210*12 = 14520

Demand during lead time = 14520/52*2.5 = 698

Reorder Point (R) = 698 + 9 = 707

Annual holding cost per item = 1.3*4 = 5.2

Q = EOQ = (2*annual demand*ordering cost / holding cost)^0.5 = (2*14520*342/5.2)^0.5 = 1382

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.