Phoenix Valley Lighting is preparing an inventory management plan for fluorescen
ID: 435874 • Letter: P
Question
Phoenix Valley Lighting is preparing an inventory management plan for fluorescent bulbs. They have a forecasted demand of 11,910 bulbs per month with a MAD of 176 bulbs per month. The lead time to receive bulbs is 1 week(s) and they would like to have an 92% service level to avoid turning away customers. Their ordering cost is $477 and their holding cost is $2 per bulb (breakage)per year.
When doing all calculations assume that there are 4 weeks in 1 month and there are no other contractual requirements on order quantities or frequencies.If following a fixed order quantity inventory management system, what should their reorder point be? (report your answer to two decimal places).
Explanation / Answer
Economic Order Quantity=(2*Demand*Ordering cost/Holding cost)^0.5
Economic Order Quantity= (2*11910*477/2)^0.5=2383.5
Thus their order quantity =2383 bulbs per order
For this particular question the other variables like MAD, lead time are redundant