Chapter 4. Tyler is hoping to get a lot of custom cake and cookie orders in his new bakery for various parties and celebrations. He considers keeping a stock of celebratory helium balloons in his bakery so that he can sell them alongside the cakes and cookies to add more value for his customers. However, he knows that the demand for custom goods as well as the balloons is like to be probabilistic in nature instead of deterministic. He is trying to create a model of how many balloons to order to keep in stock to minimize the costs of inventory in his little bakery. He identifies the following characteristics and needs your help in filling out the table given below the information. Ordering Cost is $25.00 per order Cost of balloons is $3.50 per balloon The bakery uses the 20% annual holding cost rate for all inventory The lead time for a new order of helium balloons is 7 days. Data from other bakeries indicate that the demand during the 7-day lead time follows a normal probability distribution with a weekly mean of 22 balloons and a standard deviation of 6 balloons per week. The number of working days per year is 300 Acceptable probability of a stock-out, for Tyler is 10% or 0.10. Optimal Inventory Policy     Economic Order Quantity Q*   balloons Annual Inventory Holding Cost H   dollars Annual Ordering Cost O   dollars

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter4: Linear Programming Models
Section: Chapter Questions
Problem 81P: You want to take out a 450,000 loan on a 20-year mortgage with end-of-month payments. The annual...
icon
Related questions
Question

Chapter 4. Tyler is hoping to get a lot of custom cake and cookie orders in his new bakery for various parties and celebrations. He considers keeping a stock of celebratory helium balloons in his bakery so that he can sell them alongside the cakes and cookies to add more value for his customers. However, he knows that the demand for custom goods as well as the balloons is like to be probabilistic in nature instead of deterministic. He is trying to create a model of how many balloons to order to keep in stock to minimize the costs of inventory in his little bakery. He identifies the following characteristics and needs your help in filling out the table given below the information.

  • Ordering Cost is $25.00 per order
  • Cost of balloons is $3.50 per balloon
  • The bakery uses the 20% annual holding cost rate for all inventory
  • The lead time for a new order of helium balloons is 7 days.
  • Data from other bakeries indicate that the demand during the 7-day lead time follows a normal probability distribution with a weekly mean of 22 balloons and a standard deviation of 6 balloons per week.
  • The number of working days per year is 300
  • Acceptable probability of a stock-out, for Tyler is 10% or 0.10.

Optimal Inventory Policy

 

 

Economic Order Quantity Q*

 

balloons

Annual Inventory Holding Cost H

 

dollars

Annual Ordering Cost O

 

dollars

Total Annual Cost TC

 

dollars

Maximum Inventory Level Q*+ S

 

balloons

Average Inventory Level (Q*/2)+S

 

balloons

Reorder Point r

 

balloons

Number of Orders per Year (D/Q*)

 

 

Cycle Time (Days) T

 

days

Safety Stock S

 

balloons

Expected Stockouts per Year SO

 

 

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 3 images

Blurred answer
Similar questions
Recommended textbooks for you
Practical Management Science
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,