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Problem 14-1 (Algorithmic) Suppose that the R&B Beverage Company has a soft drink product that shows...

Problem 14-1 (Algorithmic) Suppose that the R&B Beverage Company has a soft drink product that shows a constant annual demand rate of 3000 cases. A case of the soft drink costs R&B $3. Ordering costs are $19 per order and holding costs are 27% 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: a.Economic order quantity. If required, round your answer to two decimal places. b.Reorder point. c.Cycle time. If required, round your answer to two decimal places. d. total annual cost. If required, round your answer to two decimal places.

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Expert Solution

Economic Order Quantity =(2*Annual Demand*Cost of placing 1 order/Cost of handing per unit per year)^(1/2)
Annual Demand 3000
Cost of placing 1 order $           19.00
Storage cost $             0.81 (3*27%)
Solution to 1
Putting all these factors in EOQ formula =(2*3000*19/0.81)^(1/2)
Economic Order quantity             375.15
Solution to 2
No of days in year 250
Lead days 5
Safety stock 0
Average daily use= Annual demand/No of days
Average daily use= =3000/250
Average daily use= 12
Reorder point= (Average daily usage rate * Lead time) + Safety stock
Reorder point= =(12*5) + 0
Reorder point= 60
Solution to 3
Cycle time EOQ * No of days/Annual demand
Cycle time 375.15*250/3000
Cycle time               31.26
Total No of orders =3000/375.15              8
So total 8 orders will be placed
Average Inventory =375.15/2          188
Annual ordering cost Total no of orders * order cost per unit
=8*19 $ 151.94
Annual Annual holding cost EOQ*Annual holding cost/2
=375.15*0.81/2 $ 151.94
Total Cost =151.94+151.94 $ 303.87

jeff jeffy answered 1 year ago
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