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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 3650 cases. A case of the soft drink costs R&B $4. Ordering costs are $25 per order and holding costs are 26% 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:

  1. Economic order quantity. If required, round your answer to two decimal places.

    Q*=
  2. Reorder point.

    r =
  3. Cycle time. If required, round your answer to two decimal places.

    T =  days
  4. Total annual cost. If required, round your answer to two decimal places.

    TC = $  

Solutions

Expert Solution

Solution:

Holding cost = $4 x 0.26 = $1.04

a. The economic order quantity, Q* is calculated using the formula:-

Q* = 2 x Annual Demand x Ordering cost/Holding cost
Q* = 2 x 3,650 x 25/1.04

Q* = 418.9 approx 419

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b. The reorder point, r is calculated using the formula:

r = Average daily usage x Lead time

r = 3650/250 x 5

r = 73 units

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c. The cycle time, T is calculated using the formula:

T = Q*/Annual demand x Number of working days per year

T = 490/3650 x 250

T = 33.56 days

----------------------------------------------------------------------------------------------

d. The total annual cost, TC is calculated using the formula:

TC = Total annual demand x Cost per unit + Ordering cost + Storage cost

TC = (3,650 x $4) + (3,650/419 x $25) + (3,650 x 1.04)

TC = $18,613.8

jeff jeffy answered 1 year ago
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