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Appliance for Less is a local appliance store. It costs this store $23.44 per unit annually...

Appliance for Less is a local appliance store. It costs this store $23.44 per unit annually for storage, insurance, etc., to hold microwave in their inventory. Sales this year are anticipated to be 266 units. Each order costs $68. The company is using Economic Order Quantity model in placing the orders.

It takes approximately 2 day(s) to receive an order after it has been placed. If the store insists on a 6 day(s) safety stock (assume 365-days a year), what should the inventory level be when a new order is placed?

(Round the answer to the whole number)

Solutions

Expert Solution

Annual demand = 266

Ordering cost per order = 68

Carrying cost per unit = 23.44

EOQ   = (2×266×68/23.44)^1/2

         = 39 units                             

Safety stock = (Annual demand / 365 days) × Safety days = (266/365) × 6 = 4

Inventory level at the time of a new order is placed = Average units × Lead time + Safety stock

                                                                             = (266/365) × 2 + 4

                                                                             = 6 units

jeff jeffy answered 9 months ago
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