Question

QUESTION 1 The Jubail Bicycle Shop operates 7 days per week, closing 5 days each for Eid-ul-Fitr and Eid- Ul -Adah (this gives 355 working days in a year). The shop pays SAR 600 for a particular bicycle purchased from the manufacturer. The annual holding cost per bicycle is estimated to be 25% of the SAR value of inventory. The shop sells an average of 25 bikes per week. Frequently, the dealer does not have a bike in stock when a customer purchases it, and the bike is back ordered. The dealer estimates his shortage cost per unit back-ordered, on an annual basis, to be SAR 400 due to lost future sales (and profits) and the lead time is 2 weeks. The ordering cost for each order is SAR 300. Determine the following a. [1 Mark] Optimal order quantity b. [1 Mark] Shortage level (Maximum number of back orders) c. [1 Mark] Total minimum cost. d. [1 Mark] Optimal ordering policy e. [1 Mark] How long will there be stock out?

Answer 1

Solution:

Given that,

The Jubail Bicycle Shop operates 7 days per week, closing 5 days each for Eid-ul-Fitr and Eid- Ul -Adah (this gives 355 working days in a year). The shop pays SAR 600 for a particular bicycle purchased from the manufacturer. The annual holding cost per bicycle is estimated to be 25% of the SAR value of inventory. The shop sells an average of 25 bikes per week. Frequently, the dealer does not have a bike in stock when a customer purchases it, and the bike is back-ordered. The dealer estimates his shortage cost per unit back-ordered, on an annual basis, to be SAR 400 due to lost future sales (and profits) and the lead time is 2 weeks. The ordering cost for each order is SAR 300. Determine the following

a. [1 Mark] Optimal order quantity
b. [1 Mark] Shortage level (Maximum number of backorders)
c. [1 Mark] Total minimum cost.
d. [1 Mark] Optimal ordering policy
e. [1 Mark] How long will there be stock out

Answer:

Annual demand = Working days per year x (Weekly demand / Operating days per week)

= 355 x (25/7)

= 1,268 Units

Below given the Excel Sheet and Excel formula

The Yellow marked boxes represent the formula used in the first box and answers in the second box...