Company A orders a specific product from one supplier every Tuesday. Once the order is placed it
Question:
Company A orders a specific product from one supplier every Tuesday. Once the order is placed it takes three days for delivery, and an additional 4 days to get the products on the shelf. The weekly demand for the product is 200 on average with a standard deviation of 80. The carrying charge is 20% per dollar invested in the product. Each unit of product costs the company $5, and they apply a 60% markup to this product. The company wishes a cycle service level of 95%.
Required
a. Find the correct ordering policy for this product. Calculate its parameters.
b. Suppose that the company is willing to use a continuous review (s, Q) policy for this product with Q = 200. What is the value of s? Implementing a continuous review policy will add extra operational costs. What is the maximum amount of annual cost of implementing and maintaining the continuous review (s, Q) policy so that it is preferable over the periodic review system in (a)?
Intermediate Accounting
ISBN: 978-0071339476
Volume 1, 6th Edition
Authors: Beechy Thomas, Conrod Joan, Farrell Elizabeth, McLeod Dick I