Problem 2 $250 100,000 units Unit Price of Material Annual Demand Standard Devia
ID: 2542332 • Letter: P
Question
Problem 2 $250 100,000 units Unit Price of Material Annual Demand Standard Deviation of Daily Demand 100 Days Per Year Required Service Level Material Lead Time Standard Deviation of Lead Time Setup Cost Annual Holding Cost (As % of Price) | 40% per year 2A. Determine the reorder point, assuming that there is NO safety stock. (3 points) 365 | 97.5% $500 per order 2B. Determine the optimal order quantity. (4 points) 3C. Determine the safety stock for the required service level above. The demand is normally distributed and the safety stock must protect against uncertainties in both lead time and daily demand. (4 points) 3 D. The suppler offered a 15% discount if the company orders a minimum of 2000 units each time. Determine if it is an economically attractive offer. (4 points)Explanation / Answer
2a Reorder Point Lead Time Demand+Safety Stock Reorder Point 1370+0 Reorder Point 1370 Working Annual Demand 100000 Days in year 365 Lead Time 5 days Demand for Lead time (for 5 days) 100000/365*5 Demand for Lead time (for 5 days) 1,370 2b Optimal Order Quantity (2*Annual Demand*Set up Cost/Holding Cost)^1/2 (2*100000*500)/100^(1/2) Optimal Order Quantity 1000 Annual Demand 100000 Set UP Cost 500 Annual Holding 250*40% 100 3a Safet Stock Desired Service Level*Standard Deviation*Average Demand 2.05*100*274 56170 Desired Service Level 97.5%, service factgor is 2.05 Standard Deviation 100 Average Demand 100000/365 274 3b Optimal Order quantity 1000 unit per order 1000 unit per order 2000 unit per order Set Up Cost 1000*500 and 2000*500 500000 1000000 Annual Holding Cost 1000*100 and 2000*100 100000 200000 600000 1200000 Incremental Cost 1200000-600000 600000 Discount Benefit (2000unit*250Price)-15% 425000 Since benefit is lower than incremantal cost, not a good option