Question

Gentle Ben's Bar and Restaurant uses 6,600 quart bottles of an imported wine each year. The effervescent wine costs $4 per bottle and is served only in whole bottles because it loses its bubbles quickly. Ben figures that it costs $25 each time an order is placed, and holding costs are 15 percent of the purchase price. It takes two weeks for an order to arrive. Weekly demand is 132 bottles (closed two weeks per year) with a standard deviation of 20 bottles. Ben would like to use an inventory system that minimizes inventory cost and will provide a 90 percent service probability. a. What is the economic quantity for Ben to order

Answer 1

The economic order quantity to order for Mr Ben Bar and Restaurant is 7417 bottles

Step-by-step explanation:

Annual demand D = 6,600 bottles

Ordering cost S = $25

Purchase price = $4

Holding cost = 15% of purchase price

Weekly demand = 132 bottles

Standard deviation = 20 bottles

Lead Time = 2

Using the EOQ model to find out economic order quantity for Mr Ben's Bar and Restaurant

Qopt =
`√(2DS/H)`......................(1)

Substitute the values in equation

Qopt =
`√(2 * 6,600 * $25 / 0.15 * $4)`

Qopt =
`√(550,000)`

Qopt = 7416.6198

Qopt = 7417 bottles

Hence, the economic order quantity to order for Mr Ben Bar nd Restaurant is 7417 bottles