Question

A small copy center uses 5 560-sheet boxes of copy paper a week. Experience suggests that usage can be well approximated by a normal distribution with a mean of 5 boxes per week and a standard deviation of .50 boxes per week. 2 weeks are required to fill an order for letterhead stationery. Ordering cost is $5, and annual holding cost is 34 cents per box.
Use Table.

a. Determine the economic order quantity, assuming a 52-week year. (Round your answer to the nearest whole number.)

EOQ             boxes

b. If the copy center reorders when the supply on hand is 12 boxes, compute the risk of a stockout. (Round "z" value to 2 decimal places and final answer to 4 decimal places.)

Risk             

c. If a fixed interval of 6 weeks is used for ordering instead of an ROP, how many boxes should be ordered if there are currently 24 boxes on hand, and an acceptable stockout risk for the order cycle is .0228? (Round "z" value to 2 decimal places and final answer to the nearest whole number.)

Q₀           

Answer 1

Reorder point is the quantity level that is reached when the inventory on hand drops to this level. The four determinants of the reorder point quantity are the usage rate, lead time, demand variability, lead time variability and the degree of stock out risk.