--%>
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 : What is Audit Audit : Usually a review

    Audit: Usually a review of financial statements or performance activity (like an agency or program) to establish conformity or compliance with the applicable laws, regulations, and/or standards. The state has three central association

    		•
  • Q : What is Reference Code Reference Code :

    Reference Code: A three-digit code recognizing whether the item is from the Budget Act or some other source (example, legislation), and its character (example, state operations). This is the middle segment of the budget item or appropriation number.

    		•
  • Q : Influence of opportunity costs How do

    How do opportunity costs influence the capital budgeting decision-making procedure? Opportunity costs reflect the foregone benefits of alternative not selected when a capital budgeting project is chosen. Any decrease in the cash flows of the fi

    		•
  • Q : Excess reserves Normal 0 false false

    Normal 0 false false

  • Q : Describe Section 1.50 Section 1.50 : It

    Section 1.50: It is a section of the Budget Act which A) Identifies a certain style and format for the codes employed in the Budget Act, B) Authorizes the Department of Finance

    		•
  • Q : Define the term Surplus Define the term

    Define the term Surplus: It is an outdated term for a fund’s excess of assets (or resources) over liabilities.

    		•
  • Q : Productivity growth in quantitative

    Normal 0 false false

    		•
  • Q : Financing costs in capital budgeting

    How are financing costs incorporated generally into the capital budgeting analysis procedure? Usually financing costs are captured in the discount or hurdle rate while doing NPV or IRR analysis. Usually the operating cash flows do not comprise

    		•
  • Q : Example-implicitly-weighed marginal

    Cite three example of recent decisions which you made in which you, at least implicitly, weighed marginal costs & marginal benefits.

    		•
  • Q : Define Claim Schedule Claim Schedule :

    Claim Schedule: It is a request from a state department to the State Controller's Office to distribute payment from a legal appropriation or account for a legal state obligation. The claim agenda recognizes the appropriation or account to be charged,

    		•