Problem 20-15

Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year.

Item cost	$	7.00		Standard deviation of weekly demand	20	per week
Order cost	$	243.00		Lead time	1	week(s)
Annual holding cost (%)		32	% of item cost	Service probability	95	%
Annual demand		22,100
Average demand		442	per week

a. Determine the order quantity and reorder point. (Use Excels NORMSINV( ) function to find your z-value and then round that z-value to 2 decimal places. Do not round any other intermediate calculations. Round your final answers to the nearest whole number.)

Optimal order quantity		units
Reorder point		units

b. Determine the annual holding and order costs. (Do not round any intermediate calculations. Round your final answers to 2 decimal places.)

Holding cost
Ordering cost

c. Assume a price break of $50 per order was offered for purchase quantities of 2,200 units per order. If you took advantage of this price break, how much would you save annually? (Do not round any intermediate calculations (including number of setups per year). Round your final answer to 2 decimal places.)

Annual savings