Question

A small copy center uses 6 420-sheet boxes of copy paper a week. Experience suggests that usage can be well approximated by a normal distribution with a mean of 6 boxes per week and a standard deviation of .60 boxes per week. 2 weeks are required to fill an order for letterhead stationery. Ordering cost is $6, and annual holding cost is 35 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 13 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 7 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

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.