Problem 6 A regional distributor purchases discontinued appliances from various
ID: 370631 • Letter: P
Question
Problem 6 A regional distributor purchases discontinued appliances from various suppliers and then sells them on demand to retailers in the region. The distributor operates 5 days per week, 52 weeks per year. Only when it is open for business can orders be received. The following data are estimated for a counter-top mixer: Average daily demand: 100 mixers; standard deviation of daily demand: 30 mixers; lead time: 3 days; holding cost: $9.40/unit/year, ordering cost: S35/order, service level: 92 percent. a. What economic order quantity and reorder point, should be used? b. What is the total annual cost of the continuous review system (i.e. fixed quantity model)? c. If on hand inventory is 40 mixers, one open order for 440 mixers is pending (i.e. Scheduled receipts); and no backorders exist, should a new order be placed?Explanation / Answer
Average daily demand () = 100 mixers
Standard deviation of daily demand (d) = 30 mixers
Lead Time (L) = 3 days
Holding cost (H) = $9.40/unit/year
Ordering Cost (S) = $ 35/order
Cycle service level = 92 percent
The distributor uses a continuous review (Q) system