Question
In: Accounting
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
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