Kelly Opens an Aquarium Store in a Lively Shopping Mall

question 97

Multiple Choice

Kelly opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data about the pump's sales.
$\begin{array} { l l } \text { Demand } = 10 \text { units per week } & \text { Store operates } 45 \text { weeks } / \text { year } \\\text { Order cost } = \$ 30 / \text { order } & \text { Lead time } = 3 \text { weeks } \\\text { Item cost } = \$ 80 / \text { pump } & \text { Standard deviation of weekly demand } = 4 \text { units } \\\text { Inventory-holding cost } = 15 \% \text { per year } & \text { Desired service level } = 90 \text { percent }\end{array}$
-If the current order quantity used by Kelly is 20 pumps per order, how much money can she save by adopting an economic order quantity (EOQ) policy?

• A) Less than $50
• B) More than $50 but less than or equal to $100
• C) More than $100 but less than or equal to $150
• D) more than $150

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