Question

In: Operations Management

Suppose that the R&B Beverage Company has a soft drink product that shows a constant annual...

Suppose that the R&B Beverage Company has a soft drink product that shows a constant annual demand rate of 3,450 cases. A case of the soft drink costs R&B $4. Ordering costs are $23 per order and holding costs are 26% of the value of the inventory. R&B has 250 working days per year, and the lead time is 5 days. Identify the following aspects of the inventory policy:

  1. Economic order quantity. If required, round your answer to two decimal places.

    Q*=
  2. Reorder point. If required, round your answer to the nearest whole number.

    r =
  3. Cycle time. If required, round your answer to two decimal places.

    T =  days
  4. Total annual cost. If required, round your answer to two decimal places.

    TC = $  

Solutions

Expert Solution

DEMAND = 3450

ORDERING COST = 23

HOLDING COST = 1.04

COST PER UNIT = 4

LEAD TIME = 5

WORKING = 250


1. EOQ = SQRT(2 * ANNUAL DEMAND * ORDERING COST / HOLDING COST PER UNIT) = SQRT(2 * 3450 * 23 / 1.04) = 390.64

2. REORDER POINT = DAILY DEMAND * LEAD TIME = (3450 / 250) * 5 = 69

3. CYCLE TIME = EOQ / (ANNUAL DEMAND / WORKING) = 390.64 / (3450 / 250) = 28.31

4. ANNUAL HOLDING COST = (EOQ / 2) * HOLDING COST PER UNIT = (390.64 / 2) * 1.04 = 203.1

ANNUAL ORDERING COST = (DEMAND / EOQ) * ORDERING COST = (3450 / 390.64) * 23 = 203.1

TOTAL COST OF MANAGING INVENTORY = ANNUAL HOLDING COST + ANNUAL ORDERING COST = 203.1 + 203.1 = 406.2

ANNUAL MATERIAL COST = ANNUAL DEMAND * PRICE PER UNIT = 3450 * 4 = 13800

TOTAL COST OF INVENTORY = ANNUAL HOLDING COST + ANNUAL ORDERING COST + ANNUAL MATERIAL COST = 203.1 + 203.1 + 13800 = 14206.2

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keosha answered 5 months ago
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