Store B orders on a weekly basis. Its weekly demand is 40 unitswith a standard...

Store B orders on a weekly basis. Its weekly demand is 40 units with a standard deviation of 10 units. The holding cost is $10 per unit per week and a 0.99 in-stock probability is desired. What is Store B’s weekly inventory holding cost per unit if lead time is two weeks?

A. $32.09
B. $30.09
C. $24.09
D. $25.09

Expert Solution

D = 40 units/week

σ = 10 units/week

h = 10 $/unit/week

Lead Time = 2 weeks

Since the store orders weekly, its Q = weekly demand = 40 units per order

For a 99% in stock probability, form standard normal distribution table, we find that k = 2.33

Reorder point = 40*2 + 2.33*10*(2+1)^0.5 = 120.36

Weekly inventory holding cost = $10 * 120.36 = 1203.6

Weekly inventory cost per unit = Weekly inventory cost / Q = 1203.6/40 = 30.089 = $30.09

So, Answer : OPTION B ( $30.09)

keosha answered 2 years ago

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