 # Answered! A store sells 20 cases of soda each day. Ordering costs are \$8 per order, and soda costs \$3 per case. Orders arrive 3…

A store sells 20 cases of soda each day. Ordering costs are \$8 per order, and soda costs \$3 per case. Orders arrive 3 days from the time they are placed. Daily holding costs are equal to 5% of the cost of the soda. At what point should soda be ordered?

D = Daily demand = 20 cases

S = Ordering Cost = \$8 per order

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Answered! A store sells 20 cases of soda each day. Ordering costs are \$8 per order, and soda costs \$3 per case. Orders arrive 3…
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C = Purchase cost = \$3 per case

i = Holding cost percentage = 5%

H = Daily holding cost per case = 5%*\$3 = \$0.15

L = Average lead time = 3 days

Economic Order Quantity = Q = √(2*D*S)/ H = sqrt(2*20*3/0.15) = 28.28 or 29 (rounded off)

We have to find the Re-order point (ROP)

ROP = Lead time demand = L*D = 3*20 = 60

So, when the inventory becomes equal to 60 units, an order should be placed with the ordering quantity equal to 29 cases.