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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 3,200 cases. A case of the soft drink costs R&B $4. Ordering costs are $23 per order and holding costs are 21% 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:

Economic order quantity. If required, round your answer to two decimal places. Q* =

Reorder point. If required, round your answer to the nearest whole number. r =

Cycle time. If required, round your answer to two decimal places. T = days

Total annual cost. If required, round your answer to two decimal places. TC = $

Solutions

Expert Solution

Answer 1:

Economic order quantity = SQRT (2 * Annual demand * Ordering cost per order / Carrying cost per unit)

= SQRT (2 * 3200 * 23 / (4 * 21%))

= 418.6145

Q* = 418.61

Answer 2:

Reorder point = Expected demand during lead time + safety stock

As demand is deterministic, no safety stock is required.

Lead time = 5 days

Daily demand = Annual demand / Number of working days = 3200 / 250 = 12.80

Reorder point = Expected demad during lead time + safety stock = 5 * 12.80 + 0 = 64

r = 64

Answer 3:

Cycle time = SQRT (2 * Ordering cost / (Annual demand * Carrying cost)) = SQRT(2 * 23 / (3200 * 4 * 21%)) = 0.130817 year

Converting year into days:

Cycle time = 0.130817 * 365 = 47.75 days

T = 47.75 days

Answer 4:

Total annual cost = Ordering cost + inventory carrying cost

Number of orders per annum = Annual demand / EOQ

Ordering cost = Number of orders per annum * Ordering cost per order = 3200 / 418.6145 * 23 = $175.8181

Inventory carrying cost = Average inventory * Carrying cost per unit per annum

= 418.6145 / 2 * 4 * 21%

= $171.8181

Total annual cost = $175.8181 + $175.8181

= $351.64

TC = $351.64

ekkarill92 answered 2 years ago
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