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| Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year. |
| Item cost | $ | 8.00 | Standard deviation of weekly demand | 25 | per week | |
| Order cost | $ | 178.00 | Lead time | 4 | weeks | |
| Annual holding cost (%) | 29 | % of item cost | Service probability | 98 | % | |
| Annual demand | 28,100 | |||||
| Average demand | 562 | per week | ||||
| a. | Determine the order quantity and reorder point. (Use Excel’s NORMSINV( ) function to find your z-value and then round that z-value to 2 decimal places. Do not round any other intermediate calculations. Round your final answers to the nearest whole number.) |
| Optimal order quantity | units |
| Reorder point | units |
| b. | Determine the annual holding and order costs. (Do not round any intermediate calculations. Round your final answers to 2 decimal places.) |
| Holding cost | $ |
| Ordering cost | $ |
| c. | Assume a price break of $50 per order was offered for purchase quantities of 2,100 units per order. If you took advantage of this price break, how much would you save annually? (Do not round any intermediate calculations (including number of setups per year). Round your final answer to 2 decimal places.) |
Expert Answer
c. Total holding cost and ordering cost is same. So the annual cost saving due to price break = $ 669.05
