A Company Produces Item Y, and Uses the Basic EOQ

question 25

Short Answer

A company produces item Y, and uses the basic EOQ model for managing its inventory. Lead time to obtain item Y is two weeks. Demand is normally distributed with a mean of 400 units per week and a standard deviation of 40 units per week. The desired service level is 98.5%. The ordering cost is $20, and carrying cost is 20% of the items cost, which is $10.
-Determine the annual setup cost and the annual carrying cost for product Y for the economic order quantity. (Assume 52 weeks of operation per year.)

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Definitions:

Income Sharing

A strategy where an organization's profits are distributed among its employees or other stakeholders.

Capital Balances

The amount of money that the owners of a business have contributed or accumulated in the business over time.

Capital Deficiency

A scenario in which a firm's short-term obligations surpass its short-term resources, suggesting possible financial trouble.

Liquidation

The process of bringing a business to an end and distributing its assets to claimants, often conducted when a company is insolvent.