EOQ = Square root ( 2 x 320 x 14000/ 4) = 1497

Average time between orders = EOQ/annual demand x 52 weeks = 1497/14000 x 52 = 5.56 weeks

EOQ = 1497

AVERAGE TIME BETWEEN ORDERS = 5.56 WEEKS

Cycle service level =95 %

I.e. In stock probability = 0.95

Corresponding Z value = NORMSINV ( 0.95 ) = 1.6448

Standard deviation of demand during lead time

= Standard deviation of weekly demand x Square root ( Lead time of 3 days )

= 120 x Square root ( 3 )

= 120 x 1.732

= 207.84

Therefore , required safety stock

= Z value x standard deviation of demand during lead time

= 1.6448 x 207.84

= 341.85 ( 342 rounded to nearest whole number )

Reorder point = Average weekly demand x Lead time( weeks) + Safety stock

= (14000/52 ) x 3 + 342 = 807.69 + 342 = 1149.69 ( 1150 rounded to nearest whole number )

SAFETY STOCK = 342

REORDER POINT = 1150

Annual cost of placing order

= Co x D/ EOQ

= 320 X 14000/1497

= $ 2992.65

Annual cost of holding the cycle inventory

= Ch x EOQ /2

= 4 X 1497/2

= $2994

ANNUAL COST OF PLACING ORDER = $2992.65

ANNUAL COST OF HOLDING CYCLE INVENTORY =$2994

Current on hand inventory = 1308 units

Withdrawal quantity = 95 units

Net quantity post withdrawal = 1308 – 95 = 1213

Since net quantity post withdrawal ( i.e. 1213 ) > Reorder point 1150, IT IS NOT YET TIME TO REORDER

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