Question

Petromax Enterprises uses a continuous review inventory control system for one of its SKUs. The following information is available on the item. The firm operates 52 weeks in a year. Refer to the standard normal table for z-values. Demand = 78,000 units/year Ordering cost=$38.00/order Holding cost=$3.00/unit/year Average lead time=9 weeks Standard deviation of weekly demand = 120 units The economic order quantity for this item is square box units. (Enter your response rounded to the nearest whole number.) If Petromax wants to provide a 96% service level, the safety stock is square box units (enter your response rounded to the nearest whole number) and the reorder point is square box units (enter your response rounded to the nearest whole number).

Answer 1

1406 units

630 units

14130 units

Step-by-step explanation:

the solution is given in the picture below

Answer 2

• Economic order quantity= 1406 units
• Safety Stock= 630 units
• Reorder Point= 14130 units

Step-by-step explanation:

Given Demand D= 78,000units/year

Ordering cost S = $38.00/order

Holding cost H = $3.00unit/year

Average lead time = 9 weeks

Standard deviation of weekly demand = 120 units

a) Economic order quantity:

EOQ = \sqrt{(2*D*S)/H}

EOQ = \sqrt{(2*78000*38)/3}

1405.7 = 1406 Units

b) Safety Stock:

Weekly demand = 78000/52 =1500 units

Standard deviation of weekly demand = 120 units

Lead time is 9 weeks

Using the normsinv() in excel the Z value for the desired 96% service level is 1.75

Safety stock = z\sigma _{d}\sqrt{L}

= 1.75*120*\sqrt{9}

= 630 units

Reorder point = average lead time demand + safety stock

= lead time * weekly demand + saftey stock

= 9*1500 + 630

= 13500 + 630

Reorder point = 14130