Question

Uncle Chuck’s Chicken Sandwich operates 360 days per year and uses a periodic system to make inventory decisions for fries. Daily demand has been forecast to be 500 units and the standard deviation of daily demand is 100 units. The order interval is 10 days and the order lead time is 9 days. Uncle Chuck’s Chicken Sandwich desires to maintain a service level of 98% for this item. If the on-hand inventory is 2,800, what is the order quantity? Round your answer to a whole number.

Answer 1

7,953.57 units

Step-by-step explanation:

Given that

Total number of days in a year = 360 days

Daily demand = 500 units

Standard deviation of daily demand = 100 units

Interval of order = 10 days

Lead time = 9 days

Service level = 98% its z value = 2.05

On hand inventory = 2,800

Based on the above information, the order quantity is

= Daily demand × (interval of order + lead time) + {z value × sqrt (Interval of order + lead time) × standard deviation units} - on hand inventory

= 500 units × (10 days + 9 days) + {2.05 × √19 × 100 units} - 2,800 units

= 9,500 units + 893.57 units - 2,800 units

= 7,953.57 units

We simply applied the above formula