A store sells 1440 cases of beer per year. It costs $18 to process an order...

A store sells 1440 cases of beer per year. It costs $18 to process an order of beers. The cost/price of beer is $32 per case. The shipment of all ordered beer cases arrives three days after the order is placed. The annual unit holding cost is fifteen percent of the cost/price of the beer per case. The convenience store opens 360 days a year. Which of the following statements is correct for the optimal inventory policy that minimizes the total annual inventory costs?

		The inventory cycle time is 25 days.
		The economic order quantity is 108 cases.
		The company needs to place an order when the beer inventory level drops to 10 cases.
		The cycle inventory level is 52 cases.

Solutions

Expert Solution

Annual demand, D = 1440
Ordering cost per order, K = 18
Unit cost, C = 32
Average lead time, L = 3 days
Unit carrying cost, h = 15% of C = 4.8

EOQ = (2.D.K / h)^1/2 = SQRT(2*1440*18/4.8) = 104, So, option (b) is incorrect.

Ineventory cycle time = EOQ / daily demand = 104 / (1440/360) = 26 days. So, option (a) is incorrect.

ROP = Average lead time demand = daily demand * lead time = (1440/360)*3 = 12. So, option (c) is incorrect.

The cycle inventory level is EOQ/2 = 52 cases. So, option (d) is correct.

keosha answered 1 year ago

Next > < Previous

Related Solutions

A sporting good store sells 100 pool tables per year. It costs $62 to store one...

A sporting good store sells 100 pool tables per year. It costs $62 to store one pool table for a year. To re-order, there is a fixed cost of $31 per shipment plus $16 for each pool table. How many times per year should the store order pool tables, and then what lot size, in order to minimize inventory costs? A sporting good store sells 100 pool tables per year. It costs $62 to store one pool table for a...

Beer drinkers order an average of 50 pitchers of beer per hour at Nick's Pub in...

Beer drinkers order an average of 50 pitchers of beer per hour at Nick's Pub in Bloomington, Indiana. Answer the following questions: • What is the probability that at least 100 pitchers are ordered in a three-hour period? • What is the chance that the time between ordered pitchers will be 45 seconds or less? B.An average of 100 customers arrive each hour at the Central Forest Coffee Shop. What is the probability that at least 170 customers arrive in...

A department store sells 10,000 units of handbags per year. The store orders handbags from a...

A department store sells 10,000 units of handbags per year. The store orders handbags from a manufacturer. Each time an order is placed, an ordering cost of $40 is incurred. The store pays $30 for each hand bag. The holding cost of $1 of inventory is 25 cents per year. (i.e. inventory holding rate is 25%). What is the economic order quantity?

Bloomington Breweries produces beer, ale, lager and a pilsner. Beer sells for $3 per barrel. Ale...

Bloomington Breweries produces beer, ale, lager and a pilsner. Beer sells for $3 per barrel. Ale sells for $4 per barrel. Lager sells for $6 per barrel and Pilsner sells for $4.50 per barrel. The table below shows ingredient requirements (in lbs.) for each barrel of brewery type produced as well as availability of each ingredient. Assume all quantities of Pilsner produced can be sold but no more than 50,000 barrels of each Ale and lager can be sold and...

Process Order Costing: Define Process order costing. Trace the flow of costs through a process order...

Process Order Costing: Define Process order costing. Trace the flow of costs through a process order costing system. Explain the concept and calculation of equivalent units of production. Discuss the production report as a decision making tool.

Currency appreciation: Consider price of beer. Let's pretend that last year a bottle of beer used to cost one dollar, but this year it costs two dollars per bottle.

1) Currency appreciation: Consider price of beer. Let's pretend that last year a bottle of beer used to cost one dollar, but this year it costs two dollars per bottle. a) This means beer costs twice as much as last year; or beer price has gone up by ___________% b) One dollar buys half as much beer as last year; or dollar has fallen in value by ___________% Note: The same idea works for relative values of currencies, i.e. appreciation...

The beer store sells potato chips and has does so for a long time. Over the...

The beer store sells potato chips and has does so for a long time. Over the last four years, it has observed that its weekly demand for potato chips varies quite a bit from week to week, but does not follow any seasonal or predictable pattern. The volume of potato chips is much higher than beer, and the store estimates that weekly demand can be modeled as being normally distributed with a mean of 35 bags per week, and a...

You are the manager of a company that sells iPhone cases. The costs of producing the...

You are the manager of a company that sells iPhone cases. The costs of producing the cases are given by C = 200 + 20Q (or the fixed costs are $200 and the variable costs are $20 per case). The demand for the cases is given by QD = 180 – 5P. a) What is the firm’s optimal quantity and price? b) What is the firm’s profit at the optimal quantity and price? c) If the fixed costs decrease from...

The Fashion Store sells fashion items. The store has to order these items many months in...

The Fashion Store sells fashion items. The store has to order these items many months in advance of the fashion season in order to get a good price on the items. Each unit costs Fashion $100. These units are sold to customers at a price of $250 per unit. Items not sold during the season can be sold to the outlet store at $80 per unit. If the store runs out of an item during the season it has to...

If EOQ = 360 units, order costs are $5 per order, and carrying costs are $0.20...

If EOQ = 360 units, order costs are $5 per order, and carrying costs are $0.20 per unit, what is the usage in units? How many orders will be placed in a year if there are 250 working days per year and lead time is 5 days?

Subjects