--%>
Assignment Help - homework help

Order Quantity-Cycle Inventory-Safety Inventory

Consider the following data pertaining to a distribution center.

2446_distribution centre.jpg

Ordering cost: $50 /order
Holding cost: $4 /unit /week.
Cycle service level: 97%

Summary:

The question is related to cost accounting in finance. It deals with measures such as Order Quantity, Cycle Inventory, Safety Inventory, Reorder Level, Annual Inventory Holding, Annual Ordering Cost, etc. All these measures are calculated according to given cost and time.

E

Expert

Verified

Consider the following data pertaining to a distribution center.

Mean Weekly Demand(d): 100
Standard Deviation  of Weekly Demand(Sd): 30
Lead Time(L): 2 Weeks
No. of weeks in year: 50


Ordering cost (Cp): $50 /order
Holding cost (Ch): $4 /unit /week.
Cycle service level: 97%  
Z – value for service level 97 % = 1.89
Annual demand (D) = d * No. of weeks = 100 * 50 = 5000 units
Standard deviation of weekly demand during lead time =SL = sqrt( sum of squares of ‘Sd’ during the ‘L’ number of weeks) = sqrt( 302 + 302) = 42.42 units

Order Quantity = Q = sqrt( (2 * D * Cp)/Ch) 
              = sqrt((2* 5000 * 50)/4)
              = 353.55 units
              =354 units approx

Cycle inventory = Q/2 
    = 353.55/2 
    = 176.775 units
    = 177 units approx

Safety inventory = z* SL 
     = 1.89 * 42.42 
    = 80.18 units
    = 80 units approx

Re-Order Level = d*L + z* SL
     = 100*2 + 1.89*42.42
    = 280 units approx

Annual Inv Holding Cost = (Q/2)*Ch
      = 353.55/2 * 4
      = $ 707 approx

number of orders per year
= D/Q
= 5000/353.55
=14.14

Annual ordering cost = (D/Q) * Cp
              = 5000/353.55 * 50
              =$ 707 approx

   Related Questions in Finance Basics

  • Q : Explain Urgency Statute or Legislation

    Urgency Statute or Legislation: It is a measure which includes an “urgency clause” requiring it to take effect instantly on the signing of the measure by the Governor and the filing of the signed bill with the Secretary of State. The Urgen

    		•
  • Q : Derive the long-run aggregate supply

    Normal 0 false false

  • Q : Role of depreciation in estimating

    What kind of role does depreciation play in estimating incremental cash flows? Depreciation expense is a tax deductible expense and therefore affects cash flow through its effect on taxes. Depreciation expense which is incremental to a proposed

    		•
  • Q : Explain computing of payback period How

    How do we compute the payback period for proposed capital budgeting project? What are the basic criticisms of the payback method? We compute the payback period for proposed project through adding a project's positive cash flows, one period at t

    		•
  • Q : Chartered banks Normal 0 false false

    Normal 0 false false

  • Q : Explain Governors Budget Summary or

    Governor's Budget Summary (or A-Pages): This is a companion publication to the Governor’s Budget which outlines the Governor’s goals, policies, and objectives for the budget year. This gives a perspective on important fiscal and/or structu

    		•
  • Q : Equilibrium interest rate Normal 0

    Normal 0 false false

  • Q : Define Accrual Basis of Accounting

    Accrual Basis of Accounting: The foundation of accounting in which transactions are identified whenever they take place, regardless of when cash is disbursed or received. The revenue is recorded whenever earned, and expenses are recor

    		•
  • Q : Fiscal policy to preserve the size of

    Normal 0 false false

    		•
  • Q : What is the Schedule of Operating

    Schedule of Operating Expenses and Equipment, Supplementary: The supplemental schedule proposed by department’s throughout budget preparation that details by object the expenses comprised in the Operating Expenses and Equipment class.

    		•