Sam's Cat Hotel operates 52 weeks per year, 7 days per week, and uses a continuous review
Question:
Sam's Cat Hotel operates 52 weeks per year, 7 days per week, and uses a continuous review inventory system. It purchases kitty litter for $12.0 per bag. The following information is available about these bags. Refer to the standard normal table forz-values.
≻Demand =80 bags/week
≻Order cost =$55/order
≻Annual holding cost = 29 percent of the cost
≻ Desired cycle-service level equals=96 percent
≻Lead time =4 weeks (28 working days)
≻The standard deviation of weekly demand =20 bags
≻Current on-hand inventory is 300 bags, with no open orders or backorders.
a. What is the EOQ?
Sam's optimal order quantity is 363 bags. (Enter your response rounded to the nearest whole number.)
What would be the average time between orders (in weeks)?
The average time between orders is 4.5 weeks. (Enter your response rounded to one decimal place.)
b. What should R be?
The reorder point is 390 bags. (Enter your response rounded to the nearest whole number.)
c. An inventory withdrawal of 10 bags was just made. Is it time to reorder?
It is time to reorder.
d. The store currently uses a lot size of 495 bags(i.e.,equals=495).
What is the annual holding cost of this policy?
The annual holding cost is $861.30.
(Enter your response rounded to two decimal places.)
What does the annual ordering cost?
The annual ordering cost is $462.22
(Enter your response rounded to two decimal places.)
Without calculating the EOQ, how can you conclude from these two calculations that the current lot size is too large?
A.Both quantities are appropriate.
B.When Q =495, the annual holding cost is less than the ordering cost, therefore Q is too small. Your answer is not correct.
C.When Q =495, the annual holding cost is larger than the ordering cost, therefore Q is too large. This is the correct answer.
D.There is not enough information to determine this.
e. What would be the annual cost saved by shifting from the 495-bag
lot size to the EOQ?
The annual holding cost with the EOQ is $631.62
(Enter your response rounded to two decimal places.)
The annual ordering cost with the EOQ is $630.30
(Enter your response rounded to two decimal places.)
Therefore, Sam's Cat Hotel saves $56 by shifting from the 495-bag lot size to the EOQ.
Operations management processes and supply chain
ISBN: 978-0136065760
9th edition
Authors: Lee J Krajewski, Larry P Ritzman, Manoj K Malhotra