Given the following information formulate an inventory manag

Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year.

a. Determine the order quantity and reorder point. (Use Excel\'s NORMSINV() function to find the correct critical value for the given ?-level. Do not round intermediate calculations. Round \"z\" value to 2 decimal places and final answer to the nearest whole number.)

b. Determine the annual holding and order costs. (Round your answers to 2 decimal places.)

c. Assume a price break of $55 per order was offered for purchase quantities of 2,200 or more units per order. If you took advantage of this price break, how much would you save annually? (Round your answer to 2 decimal places.)

Item cost	$	8.00		Standard deviation of weekly demand	20	per week
Order cost	$	223.00		Lead time	4	weeks
Annual holding cost (%)		28	% of item cost	Service probability	99	%
Annual demand		27,400
Average demand		548	per week

Solution

Q= square root (2DS/H) = 2(27400)223/ .28(8) = 2336 From Standard normal distribution, z = 2.33 =548*(1)+(2.33)*20=594.60 ====================================== b. Holding cost = Q/2 (H) = 2336/2 (.28)8 = $2616.32 Ordering cost =D/Q(S) = (27400/2336)*$223 = 2616 Total annual cost with discount is $5232 - 55(27400/2200) = $4547, without discount it is $5232. Therefore, the savings would be $685 for the year.