A Store Has Collected the Following Information on One of Its

question 79

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:

Compounded Monthly

A method of calculating interest in which the interest accrued in each month adds to the principal for the calculation of subsequent interest.

Effective Annual Rate

The interest rate that is annually compounded, taking into account the effects of compounding.

Perpetuity

A type of annuity that pays an infinite series of cash flows, with no end date.

Opportunity Cost

The financial consequence of skipping the immediate secondary choice while deciding.