Case Study 4: Inventory Management. (II) A regional distributor purchases discontinued appliances from various suppliers and then sells them on demand to retailers in the region. The distributor operates 5 days per week, 52 weeks per year. Only when it is open for business can orders be received. Management wants to reevaluate its current inventory policy, which calls for order quantities of 440 counter-top mixers. The following data are estimated for the mixer:Average daily demand 100 mixersStandard deviation of daily demand 30 mixersLead time (L) = 3 daysHolding Cost (H) = $9.40/order/yearOrdering Cost (S) = $35/orderCycle service level = 92%The distributor uses a continuous review (Q) system What order quantity, Q, and reorder point, R, should be used? What is the total annual cost of the system? If on-hand inventory is 40 units, one open order for 440 mixers is pending and no back orders exist, should a new order be placed?

Answer - Part 1 - Calculation of Order Quantity - D = (5 days/week)(52 weeks/year)(100…

Answered: A regional distributor purchases…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 2CE: Sterling Corporation has an EOQ of 5,000 units. The company uses an average of 500 units per day. An...

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Case Study 4: Inventory Management.

(II) A regional distributor purchases discontinued appliances from various suppliers and then sells them on demand to retailers in the region. The distributor operates 5 days per week, 52 weeks per year. Only when it is open for business can orders be received. Management wants to reevaluate its current inventory policy, which calls for order quantities of 440 counter-top mixers. The following data are estimated for the mixer:

Average daily demand 100 mixers
Standard deviation of daily demand 30 mixers
Lead time (L) = 3 days
Holding Cost (H) = $9.40/order/year
Ordering Cost (S) = $35/order
Cycle service level = 92%
The distributor uses a continuous review (Q) system

What order quantity, Q, and reorder point, R, should be used?

What is the total annual cost of the system?

If on-hand inventory is 40 units, one open order for 440 mixers is pending and no back orders exist, should a new order be placed?

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