--%>
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 : Describe Modigliani and Miller theory

    Describe Modigliani and Miller theory of dividends? Describe. The Modigliani-Miller theory of dividends says which dividend theory is irrelevant. They claim that it is the income generated by assets that is significant, not how funds are distr

    		•
  • Q : What is Fingerprint biometrics

    Fingerprint biometrics has basically three main application ground: Large-scale Automated Finger Imaging System for law enforcement Fraud prevention in entitlement programs Access control for facilities or computers.

  • Q : Define Governors Budget Governor's

    Governor's Budget: The publication the Governor represents to the Legislature, by January 10 every year. It has recommendations and approximates for the state’s financial operations for the budget year. This also displays the real revenues and e

    		•
  • Q : Define the term State Fiscal Year

    Define the term State Fiscal Year: This is the period beginning from July 1 and continuing through the subsequent June 30.

    		•
  • Q : Describe Treasury bill Describe

    Describe Treasury bill? How risky is it?Treasury bills are short term debt instruments issued through the U.S. Treasury which are sold at a discount and pay face value at maturity.  They are very close to risk-free as they are backed throug

    		•
  • Q : Explain Administration Program Costs

    Administration Program Costs: It is the indirect cost of a program, usually a share of the costs of the administrative units serving the whole department (example, the Director's Office, Personnel, Legal, Accounting, and Business Serv

    		•
  • Q : State statement of cash flows State

    State three major sections of the statement of cash flows? Cash flows from investing activities Cash flows from Operations Cash flows from financing activities Net change in cash balance Cash balance at beginning of period

    		•
  • Q : Define Current Year Current Year (CY):

    Current Year (CY): It is a term utilized in budgeting and accounting to designate the operations of the current fiscal year in contrast to past or future periods.

    		•
  • Q : Explain Object of Expenditure Object of

    Object of Expenditure (Objects): It is a categorization of expenditures based on the kind of goods or services received. For illustration, the budget group of Personal Services comprises the objects of Salaries and Wages and Staff Benefits.

  • Q : Demand for small automobiles Normal 0

    Normal 0 false false