Bob’s apple store utilizes a continuous review system. Current on had inventory is 295 bags of...
Bob’s apple store utilizes a continuous review system. Current on had inventory is 295 bags of apples, with no open orders or backorders. He buys apples year round, 52 weeks a year, 5 days a week. He buys apples for $10.20 a bag. The following information is available about these bags of apples:
Demand = 80 bags/week
Order cost = $48/order
Annual Holding cost = 32 percent of the cost of a bag
Desired cycle-service level = 87 percent
Lead time = 2 weeks (10 working days)
Standard deviation of weekly demand = 12 bags
Go to two decimal points in all calculations. show work
3A. What is the annual holding cost (H) per unit expressed in dollars? __________________ answer
(two decimal points)
3B. What is the annual demand (D) of bags of apples? ___________________ answer
(two decimal points)
3C. What is order cost (S) expressed in dollars? (per order) ________----------------------------ans.
(two decimal points)
3D. What is the EOQ? ( I want a number here, not a noun) ________________ answer (two decimal points)
3E. What would the average TBO (time between orders) (in weeks)? _________________ answer (weeks) (two decimal points)
3F. What is the safety stock? (I want a number here) ___________________ answer
(two decimal points)
3G. What should R (re-order point) be? ________________ answer (two decimal points)
Homework Answers
3A.
Annual holding cost = 32%*purchase cost = 0.32*10.2 = $3.264 = $3.26 (Rounded to 2 decimal places)
3B
Annual Demand (D) = 80*52 = 4160
3C
Ordering cost per order = $48
3D
EOQ = Square root ((2*D*S)/h)
EOQ = Square root ((2*4160*48)/3.26)
= Square-root(122503.0675)
=350.0043821
= 350 (Rounded to 2 decimal places)
3E
average TBO (time between orders) (in weeks) = No. of weeks / number of orders
NUmber of orders = Annual demand/EOQ = 4160/350 = 11.88571429
average TBO (time between orders) (in weeks) = 52/11.88571429 = 4.375 = 4.38 (Rounded to 2 decimal places)
3F
z value at 87% service level = 1.126391129
Standard deviation of demand during lead time = Standard deviation of weekly demand * Square root(lead time in weeks) = 12*Square root(2) = 16.97056275
Safety stock = z-value*Standard deviation of demand during lead time = 1.126391129*16.97056275 = 19.11549134 = 19.12 (Rounded to 2 decimal places)
3G
Re-order point = Demand per week * Lead time in week + Safety
stock
= 80*2 + 19.12
= 179.12
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