A small caf owner feels that the average daily demand for its best-seller item in inventory...

  

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A small café owner feels that the average daily demand for its best-seller item in inventory for the coming year is 720 units. The lead time on orders is only 2 days, and is assumed to be normally distributed with o=1. The cost per unit of lost sales is Php 120, the cost of placing an order is Php 260, and the cost of carrying a unit in inventory for one year is Php 8. Management desires that 99% of all demand be met from stock. Required: a. Compute the approximate optimum or economic order quantity. Interpret this figure. b. Compute the approximate reorder point. Interpret this figure. c. Suppose management wanted a 95% service level, what would be the approximate reorder point? d. Suppose management wanted a 90% service level, what would be the approximate reorder point? e. Is there a pattern or relationship between service level and reorder point? f. Come up with the graph of this café's costs at varying order quantities -- Carrying, Holding, and Total Cost. g. Given the cost behavior, which would be your bias -- stock plenty or stock just a few? Explain why. A small café owner feels that the average daily demand for its best-seller item in inventory for the coming year is 720 units. The lead time on orders is only 2 days, and is assumed to be normally distributed with o=1. The cost per unit of lost sales is Php 120, the cost of placing an order is Php 260, and the cost of carrying a unit in inventory for one year is Php 8. Management desires that 99% of all demand be met from stock. Required: a. Compute the approximate optimum or economic order quantity. Interpret this figure. b. Compute the approximate reorder point. Interpret this figure. c. Suppose management wanted a 95% service level, what would be the approximate reorder point? d. Suppose management wanted a 90% service level, what would be the approximate reorder point? e. Is there a pattern or relationship between service level and reorder point? f. Come up with the graph of this café's costs at varying order quantities -- Carrying, Holding, and Total Cost. g. Given the cost behavior, which would be your bias -- stock plenty or stock just a few? Explain why.

Answer rating: 100% (QA)

To solve the inventory management problem we can use the Economic Order Quantity EOQ model Lets calculate the values based on the given information Average daily demand D 720 units Lead time LT 2 days ... View the full answer