Sarah’s Muffler Shop has one standard muffler that fits a large variety of cars. Sarah wishes...

Sarah’s Muffler Shop has one standard muffler that fits a large variety of cars. Sarah wishes to establish a reorder point system to manage inventory of this standard muffler.

Use the following information to answer the questions.

Annual demand		3,500 muffler
Ordering cost		$50 per order
Standard deviation of daily demand		6 mufflers per working day
Item cost		$30 per muffler
Annual holding cost		25% of item (muffler) value
Service probability		90%
Lead time		2 working days
Working days		300 per year

You must show your calculations—do not just give a number without showing how you arrived at the number.

Determine the best order size
What is the reorder point?

Expert Solution

Ans (a): Best order size

Economic Order Quantity:

Economic order quantity is the level of quantity that minimizes the total ordering cost and total holding cost.

Calculations are hand written:

Best Order Size = 216 units

Ans (b): Reorder point

Reorder Point = 34 units

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keosha answered 1 year ago

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