Question

MARGI sells different types of wine. Customers place orders to the most popular “Summer Wine” at a rate of 125 bottles a month on the average. The store buys this wine from WSCo at $5 a bottle, and a required lead-time of 1.5 weeks. Ordering cost per order for MARGI is $14, and annual holding rate is 22%. Management is worried about daily variations of the demand, thus has decided to increase the EOQ order size by a lot.

1. Would management improve the cycle service level by doing so?
   1. Yes. The average inventory increases.
   2. Yes. If the order size increases, the safety stock also increases.
   3. Yes. The ratio of [Order size]/[Demand] increases.
   4. No. Order size does not affect the service level.
      
2. MARGI used to work with 50% service level before. How much safety stock MARGI held?
   1. I need to know the standard deviation, in order to answer.
   2. No safety stock at all
   3. 50% of the order size
   4. None of the above

To apply the cycle-service-level policy MARGI estimated the monthly standard deviation of demand at 53.5 bottles, where one month is considered 4 weeks.

3. Which statement is correct about the re-order point.
   1. The re-order point can be calculated by (1.5/4)*52)*125+sqrt((1.5/4)*52)*53.5
   2. Please provide the service level required SL, and then I will follow with norm.inv(SL,125,53.5)
   3. Please provide the service level required SL, and then I will follow with norm.inv(SL,125*(4/1.5),53.5*sqrt(4/1.5))
   4. Please provide the service level required SL, and then I will follow with
      norm.inv(SL,125(1.5/4),53.5*sqrt(1.5/4))
      
4. Management allows holding cost of safety stock to amount to 25% of the annual holding cost of the EOQ policy. What cycle service level can MARGI achieve with this amount of money? Calculate and show your work.
   

Answer 1