Question

Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year. PARAMETER VALUE Item cost $10.00 Order cost $200.00 /order Annual holding cost 25 % of item cost Annual demand 24,750 units Average weekly demand 500 /week Standard deviation of weekly demand 25 units Lead time 2 week Service probability 95 % a. Determine the order quantity and reorder point.

Answer 1

To determine the order quantity and reorder point, we can use the Economic Order Quantity (EOQ) model. The EOQ formula is given by: EOQ = sqrt((2 * demand * order cost) / holding cost). Substituting the given values, we can calculate the order quantity and reorder point.

Step-by-step explanation:

To determine the order quantity and reorder point, we can use the Economic Order Quantity (EOQ) model. The EOQ formula is given by:

EOQ = sqrt((2 * demand * order cost) / holding cost)

Substituting the given values, we can calculate:

EOQ = sqrt((2 * 24,750 * 200) / (0.25 * 10))

EOQ = sqrt(990,000)

EOQ = 995 units (approximately)

The reorder point (ROP) can be calculated using the formula:

ROP = average weekly demand * lead time

Substituting the given values, we can calculate:

ROP = 500 * 2

ROP = 1000 units