Question

Problem 11-15 (Algo)

Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year.

PARAMETER	VALUE			PARAMETER	VALUE
Item cost	$	11.00		Standard deviation of weekly demand	30	per week
Order cost	$	277.00		Lead time	1	week
Annual holding cost		32	% of item cost	Service probability	90	%
Annual demand		26,900
Average weekly demand		538	per week

a. Determine the order quantity and reorder point. (Use Excel's NORM.S.INV() function to find the z value. Round z value to 2 decimal places and final answer to the nearest whole number.)

b. Determine the annual holding and order costs. (Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places.)

c. Assume a price break of $55 per order was offered for purchase quantities of 2,000 or more units per order. If you took advantage of this price break, how much would you save annually? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

@ Annual Demand (D)= 26900 Order cost (S) - $277 Item costa Annual cost Holding perunit (H) = 324 qui 11 = $ 3-52 Border quantity (QUE 205 2x 26900x27 3.52 H 2058 units Recorda pointe dultza dhat average w weekly demand - 536 LT - head time EL week I value for 90.4 service - !-26 Kat Standard deviation weekly demand= Recordes point: 538x1+ 1-28x30x111 = 576 units 30

* Annual sholding geolering QxH + DXs 2 2 2058 x 3-52 + 26900 x 277 2056 = $ 7242.73 © Mep order cost (5')= 277-55 - $ 222 Cordes quantity (21) = 2000 Annual holding and QxH + D xs andering costs. 2 2000 X 3-52+ 26900 222 2 2000 = $ 6505-9 Amount saved manually. 1242.7.3 - 6505-9