Sam\'s Cat Hotel operates 52 week per year, 5 days per week, and uses a continuo
ID: 367378 • Letter: S
Question
Sam's Cat Hotel operates 52 week per year, 5 days per week, and uses a continuous review inventory system. It purchases kitty litter for $11.00. per bag. The following information is available about these bags.
Demand = 80 bags per week
Order Cost =$55 per order
Annual holding Cost = 25 percent of cost
Desired cycle-service level = 90 percent
Lead time = 1 week(s) (5 working days)
Standard deviation of weekly demand =10 bags
Current on-hand inventory is 325 bags, with no open borders or back orders
a. What is the EOQ? Sam's optimal order quantity is ____bags. (Enter your response rounded to the nearest whole number.)
b. What should R be?
c. An inventory withdraw of 10 bags was just made. Is it time to reorder?
Explanation / Answer
Annual Demand (D) = 80*52 = 4160
Ordering cost (S) = 55
Holding cost (H) = 25%*Price = 25%*11 = 2.75
Weekly demand (d) = 80
SD = 10
Lead time = 1 week
z value for 90% service level is 1.28
a) EOQ = sqrt(2*D*S/H) = sqrt(2*4160*55/2.75) = 408 units
b) Reorder point = d*LT + z*SD*sqrt(LT) = 80*1 + 1.28*10*sqrt(1) = 80+12.8 = 92.8
c) Current stock is 325 bags. If 10 bags are reduced, it will not reach reorder point. So, it is not time to reorder