High Tech, Inc. is a virtual store that stocks a variety of calculators in the warehouse. Customer orders are placed, the order is picked and packaged, and then shipped to the customer. A fixed order quantity inventory control system (FQS) helps monitor and control these SKU's. The following information is for one of the calculators that they stock, sell and ship.
average demand 12.5 calculators per week
lead time 3 weeks
order cost $20/order
holding cost $1.20/calculator/year
number of weeks 52 weeks per year
standard deviation of weekly demand 3.75 calculators
SKU service level 90 percent
current on hand inventory 35 calculators
scheduled receipts 20 calculators
backorders 2 calculators
a. What is the Economic Order Quantity?
b. What is the total annual order and inventory holding costs for the EOQ?
c. What is the reorder point without safety stock?
d. What is the reorder point with safety stock?
e. Based on the previous information, should a fixed order quantity be placed, and if so, for how many calculators?