Problem 1 (10 points)

A firm is operating a fixed inventory system. One product has the following characteristics:

Order cost $40/order

Unit cost $10/unit

Holding cost/unit/year 20% of unit cost

Annual demand 1800

Lead time 2 weeks

Answer the following questions:

a. What is the optimal order quantity, EOQ?

b. What is the total annual inventory cost?

c. If management decides to use order size of 400 rather than the EOQ, what will be the impact on total cost? (Calculate)

c. If demand is not constant and it has a weekly standard deviation of 12 units, what is the reorder point for a service level of 95%? Assume that there are 50 working weeks in one year. (You can find copy of the Z table in your book, page 599.)

Problem 1 (10 points) A firm is operating a fixed inventory system. One product has the following characteristics: Order cost $40/order Unit cost $10/unit Holding cost/unit/year 20% of unit cost Annual demand 1800 Lead time 2 weeks Answer the following questions: a. What is the optimal order quantity, EOQ? b. What is the total annual inventory cost? c. If management decides to use order size of 400 rather than the EOQ, what will be the impact on total cost? (Calculate) c. If demand is not constant and it has a weekly standard deviation of 12 units, what is the reorder point for a service level of 95%? Assume that there are 50 working weeks in one year. (You can find copy of the Z table in your book, page 599.) 7 A B