USA: +1 725-224-8795 
Sign in
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?
Expert Answer
D = Daily demand = 20 cases
S = Ordering Cost = $8 per order
Don't use plagiarized sources. Get Your Custom Essay on
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…
GET AN ESSAY WRITTEN FOR YOU FROM AS LOW AS $13/PAGE
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.
