A Store Has Collected the Following Information on One of Its

question 71

Essay

A store has collected the following information on one of its products:
Demand = 10,000 units/year
Standard deviation of weekly demand = 25 units
Ordering costs = $30/order
Holding costs = $4/unit/year
Cycle-service level = 95% (z for 90% = 1.28)
Lead time = 2 weeks
Number of weeks per year = 50 weeks
a.If a firm uses the continuous review system to control the inventory,what would be the order quantity and reorder point?
b.The firm decided to change to the periodic review system to control the item's inventory.For the most recent review,an inventory clerk checked the inventory of this item and found 200 units.There were no scheduled receipts at the time.How many units should be ordered? (HINT: Use the EOQ model to derive P,the time between reviews.)

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Definitions:

LIFO Layers

In accounting, layers created under the Last-In, First-Out inventory valuation method, each representing a specific cost associated with inventory purchased at different times.

Inventory Holding Gains

Inventory holding gains are the increases in value of inventory the company holds due to price increases, not yet realized through sales.

Liquidation

The process of bringing a business to an end and distributing its assets to claimants, usually when the company is unable to meet its financial obligations.

LIFO

Last In, First Out, an inventory accounting method where the last items added to inventory are the first ones to be used or sold, affecting cost of goods sold and inventory valuation.