Question

In: Operations Management

A certain type of computer costs $1,000, and the annual holding cost is 25% of the value of the item.

Section A: This section carries 10 points

A certain type of computer costs $1,000, and the annual holding cost is 25% of the value of the item. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity? What is the total inventory cost?

Section B: This section carries 10 points

What is the difference between continuous review system and periodic review system?

 

Solutions

Expert Solution

Cost : $1000

H = : 25% of cost (1000*0.25) = $250

D = 10,000

S = $150

EOQ = Square root of ( ( 2 * 10,000*150 ) / 250)

EQO = 109.5445

Inventory cost

Tc = (109.54 / 2 )* 250 + (10000 / 109.5445)* 150

Tc = 13692.5 + 13693.0653

Tc = 27385.5653

Section B

Periodic inventory review involves counting and documenting inventory at specified times. For example, a retail store operating under a periodic review policy might count inventory at the end of each month. Continuous inventory review, also known as perpetual review, involves a system that tracks each item and updates inventory counts each time an item is removed from inventory. For example, a retailer may use bar code scanners to record customer purchases and update inventory counts every time a cashier scans a product code.

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