Weekly demand, d = 132

So, Annual demand, D = 132 boxes per week * 52 weeks = 6,864

Order cost, K = $74

Unit holding cost, h = 24% of 5.65 = $1.356

Average lead time, L = 3 weeks

CSL = 95%, So, z = 1.645

Std.Dev. of weekly demand, σ = 25 boxes

(a)

EOQ = (2.D.K / h)1/2 = SQRT(2*6864*74 / 1.356) = 866 boxes

Average time betwwen orders = EOQ / weekly demand = 866 / 132 = 6.56 weeks

(b)

ROP = d.L + z.σ.√L = 132*3 + 1.645*25*√3 = 467 boxes

(c)

The inventory level becomes 159 – 18 = 141 boxes which is less than the ROP. So, it is time order (even befire the inventory withdrawal, the inventory level of 159 is below ROP).

(d)

Q = 600

Annual holding cost = (Q/2) * h = (600/2)*1.356 = $406.8

Annual ordering cost = (D/Q) * K = (6864/600) * 74 = $846.56

Since the ordering cost is more than the holding cost, the order size is too less (not large!). If it were EOQ, then they would have been equal.

(e)

Q = EOQ = 866

Annual holding cost = (866/2)*1.356 = $587.1

Annual ordering cost = (6864/866) * 74 = $596.5

So,

Savings = ($406.8 + $846.56) – ($587.1 + $596.5) = $69.76

Thanks for installing the Bottom of every post plugin by Corey Salzano. Contact me if you need custom WordPress plugins or website design.