Answer:
EOQ 400 units
inventory cost $1,200
holding $600
ordering $600
reorder point 369.9 pounds
Explanation:
EOQ
[tex]Q_{opt} = \sqrt{\frac{2DS}{H}}[/tex]
Where:
D = annual demand = 200 days x 75 pound per day = 15,000
S= setup cost = ordering cost = $ 16
H= Holding Cost = $ 3
[tex]Q_{opt} = \sqrt{\frac{2(15,000)(16)}{3}}[/tex]
EOQ 400
Inventory cost:
average inventory x holding cost
400/2 x $3 = $600 holding cost
order per year x order cost
15,000/400 x $16 = $600 order cost
reorder point: demand x lead time + safety stock
to get a confidence of 99% we need to look at the table for a Z value which is above 99% of the cases and then, move it to our ditribution.
In the talbe we got at a Z of 2.33 has a score of 0.99 which is the probability we want.
Now we calculate the safety stock
[tex]2.33 \sqrt{4\times 15^{2} }[/tex]
safety stock: 69.9
This is the safety stock
Now the company will reorder at:
daily use x lead time + safety stock:
75 x 4 + 69.9 =
300 + 69.9 = 369.9
