A Store Has Collected the Following Information on One of Its

question 33

Essay

A store has collected the following information on one of its products:
Demand = 4,500 units/year
Standard deviation of weekly demand = 12 units
Ordering costs = $40/order
Holding costs = $3/unit/year
Cycle-service level = 90% (z for 90% = 1.28)
Lead-time = 2 weeks
Number of weeks per year = 52 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 300 units. There were no scheduled receipts or backorders 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:

After-tax Value

The value of an investment or income after all taxes have been deducted, reflecting the net gain or loss.

Tobin's Q

A ratio comparing the market value of a company's assets to their replacement cost, often used to assess if a company is under or overvalued.

James Tobin

An American economist known for his work on the links between financial markets and economic decisions, especially the Tobin tax concept.

Long-run Value

The intrinsic value of an asset or company based on fundamental analysis, considering its potential for growth and profitability over an extended period.