Homework SourseSunCar distributes parts for American cars in Belgium Batter
SunCar distributes parts for American cars in Belgium. Batteries are a commonly requested item. The lead time to obtain car batteries is two months and the average demand is 100 per month. Lead time demand is normally distributed with a standard deviation of 10 units. Order cost is $75 and holding cost is $10 per year per battery.
The safety stock necessary to maintain a 95% service level is closest to
33
The reorder point including safety stock is closest to
73
The total inventory cost including safety stock is closest to
| 19 |
Solution
a.
d= average demand = 100 per month
L = lead time = 2 months
d = standard deviation = 10 units
Service level = 95%
z-score for 95% CSL is 1.65
Safety Stock = zdL = 1.65 x 10 x 2 = 23.33
Safety stock = 23 units
b.
Reorder Quantity level for Q-model:
R = monthly demand during lead time + Safety stock
R = dL + zdL
R = (100)(2) + 23
R = 223
Reorder point = 223 units
c.
To determine optimal order quantity apply continuous review model as follows:
The EOQ units = Q = (2AS/(h))
A = annual demand = 12 x 100 = 1200 per year
S = Ordering cost = $75
Holding cost = $10
EOQ = (2*1200*75/10)
Q* = 134 units
OR EOQ = 134 units
Annual Holding Cost
AHC = (Q/2 + SS) x h
(134/2 + 23)x $10
= $900
Annual Ordering
AOC = D/Q x S
1200/134 x $75
$671.64
Total annual Cost
TC = AHC + AOC
$900 + 671.64 = $1,571
ANS: Total inventory cost = $1,571
| Annual Holding Cost | AHC = (Q/2 + SS) x h | (134/2 + 23)x $10 = $900 |
| Annual Ordering | AOC = D/Q x S | 1200/134 x $75 $671.64 |
| Total annual Cost | TC = AHC + AOC | $900 + 671.64 = $1,571 |
