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.

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 2 years ago

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