Question

Johnson Corporation has the following information about a product that it carries in stock: Average demand = 40 units per day
Average lead time = 15 days
Item unit cost = $55 for orders of less than 400 units
Item unit cost = $50 for orders of 400 units or more
Ordering cost = $30
Inventory carrying cost = 20%
The business year is 300 days
Standard deviation of demand = 2.5 units
Standard deviation of lead time = 1.5 days
Desired service level = 97.5%
a. What is the annual total acquisition cost of ordering at the $55 price?
b. What is the annual total acquisition cost of ordering at the $50 price?
c. What level of safety stock should Johnson maintain for the item?
d. If Johnson chooses the ordering policy that results in the lowest total annual acquisition cost, and maintains the safety stock level for 97.5% service, what will Johnson’s average inventory be for this item?
e. What will the annual inventory turnover rate be for this item?
f. What will the reorder point be for the item?


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  • CreatedMarch 30, 2015
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