M3 Assignment 3 Problem 14

A) is correct

Sam's Cat Hotel operates 50 weeks per year, 6 days per week, and uses a continuous review inventory system. It purchases kitty litter for $12.00 per bag. The following information is available about these bags: > Demand = 70 bags/week > Order cost = $55.00/order > Annual holding cost = 40 percent of cost > Desired cycle-service level = 80 percent > Lead time = 5 weeks (30 working days) > Standard deviation of weekly demand = 15 bags > Current on-hand inventory is 320 bags, with no open orders or backorders. a. Suppose that the weekly demand forecast of 70 bags is incorrect and actual demand averages only 45 bags per week. How much higher will total costs be, owing to the distorted EOQ caused by this forecast error? The costs will be $ 26.53" higher owing to the error in EOQ. (Enter your response rounded to two decimal places.) b. Suppose that actual demand is 45 bags but that ordering costs are cut to only $11.00 by using the internet to automate order placing. However, the buyer does not tell anyone, and the EOQ is not adjusted to reflect this reduction in S. How much higher will total costs be, compared to what they could be if the EOQ were adjusted? The costs will be $ higher owing to the error in EOQ. (Enter your response rounded to two decimal places.)