5. Ordering Eggs.

a. Economic Order Quantity Computation. Compute the Economic Order Quantity Q* for eggs.

b. Safety Stock Computation. Compute the safety stock of eggs it would take to assure a 99.87% service level.

c. Reorder Point Computation. Compute the Reorder Point for eggs, using the safety stock that you calculated in 5b.

d. Days of Supply expression of ROP. We could express the Reorder Point rule from part 5c this way: Order more eggs when the supply is X days. Give an expression for X.

e. Average Eggs on Hand. Compute the average daily quantity of eggs on hand, using your answers to parts 5a and 5b. Express also in Days of Supply.

Hints:5. Ordering Eggs. (Continuous Review: EOQ and ROP computations.) a. Economic Order Quantity Computation. Hint: Q* = Second hint: Convert demand and holding costs to daily values. b. Safety Stock Computation. Hint: The z-value associated with SL = 99.87 is 3.00. Safety Stock = z c. Reorder Point Computation. Hint: ROP = expected demand in Lead Time + Safety Stock. d. Days of Supply expression of ROP. Hint: answer from 5c / daily demand e. Average Eggs on Hand. Hint: Iavg = Q/2 + SS. To express in Days of Supply, divide by daily demand.

Real butter and fresh eggs are also important ingredients in Just Baked cupcakes. These are managed according to a continuous review system and ordered whenever inventory levels reach a reorder point. Annual demand D for eggs is 600,000. The cost of placing an egg order S, including delivery charges, is $40. Lead time for eggs is 1 day. Holding costs for eggs are dominated by their limited shelf life and the requirement that they be held in cold storage and handled with care. These costs total $0.02 per egg per day. Financial holding costs are negligible. Daily demand for eggs averages about 1600, but there are significant variations from day to day. The standard deviation of daily egg demand is 400. Daily demand for eggs is approximately normally distributed.