Question

PLEASE ANSWER ALL QUESTIONS:

A grocery store in the community of Byera sells cases of bottled water to its customers on a regular basis. Demand for the water is relatively constant with a rate of 150 cases per day. The store is open 250 days per year. The cost of a case of water is $20 The following information is available about the operation and purchase of the water:

Ordering cost : $30. / order

Annual holding cost per unit : 10.% of cost per case

Desired cycle service level : 95% equivalent to 2 standard deviation (i.e. Z = 2.0)

Lead time : 2 days

Standard deviation of daily demand : 3 cases per day

Current on-hand inventory is 300 units, with no open orders or backorders

i. What is the EOQ?

ii. What is the number of orders placed per year?

iii. What would be the average time between orders?

iv. What is the ROP? [4 marks] v. An inventory withdrawal of 100 cases was just made. Determine if an order should be place after the withdrawal.

vi. If the store currently uses a lot size of 500 cases, determine the annual holding cost and the annual ordering cost of this policy?

vii. What would be the annual cost saved, if any, by shifting from the 500-caseslot size to the EOQ?

Answer 1

Economic Order Quantity refers to the number of unit the company should add to the inventory and the order is made to minimize the total inventory cost. It maintain a balance between ordering costs and carrying costs. Reorder point is the level of inventory which the firm holds in stock and when the inventory level reach this point, the firm must reorder the item.

EOQ act as a review inventory system to monitor the inventory level continuously and once the level reaches the reorder point, a fixed quantity of order is placed. Thus EOQ helps in calculating reorder point and optimal reorder quantity to avoid shortage of inventory.

め,{" 10 20 100 LT 2 ed 3-cases OH 300 un days = 150x250 31,500 units 2 Lu 31500 1061

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E0031500 30 2 1060 32+ 106 B 2121-32 or 32121 TC Saving TC 500 b g 2150-2121 627 Auguver