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Harvey's Specialty Shop is a popular spot that specializes in international gourmet foods. One of the items that Harvey...

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Harvey's Specialty Shop is a popular spot that specializes in international gourmet foods. One of the items that Harvey sells is a popular mustard that he purchases from an English company. The mustard costs $26 a jar and requires a 3-month lead time for replenishment of stock. The replenishment time is constant. Harvey uses a 20% annual interest rate to compute holding costs. Bookkeeping expenses for placing an order amount to about $60. During the 3-month supply time, Harvey estimates that he sells an average of 150 jars but there is substantial variation. He estimates the standard deviation of demand for each 3-month period is 25. Assume that demand is described by a normal distribution. (5 + 5 + 5 + 12 +13 + 20 = 60 points) a) What is the optimal order quantity? b) What will be the average time between transactions? c) How much safety stock should be maintained for 96% cycle service level? d) What should be the reorder point for 96% fill rate? e) Now suppose that the English company is ready to send the mustard by a faster ship, which will reduce the replenishment lead time to 1-month and the standard deviation of demand during that period to 14.4, but increase the cost to $32 per jar. What will be the new reorder point for 96% fill rate service level? f) In order to achieve 96% fill rate service, what will be the optimal total inventory cost (Ordering + Holding + Purchase) before and after the decrease of lead time (and resultant price increase)? What managerial insights can you get from this?

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To solve these questions use the Economic Order Quantity EOQ model and the normal distribution to determine optimal order quantity average time betwee View the full answer


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South-Western Federal Taxation 2020 Comprehensive

South-Western Federal Taxation 2020 Comprehensive

ISBN: 9780357109144

43rd Edition

Authors: David M. Maloney, William A. Raabe, James C. Young, Annette Nellen, William H. Hoffman

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Chapter # 29- Practice Set Assignments— Comprehensive Tax Return
Section: Problems
Problem: 2
Posted Date: August 25, 2023 03:27:16
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