Continuous reviewinventory system

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Sam's Cat Hotel operates 52 weeks per year, 6 days per week, and uses a continuous reviewinventory system. It purchases kitty litter for $11.70 per bag. The following information isavailable about these bags.

Demand =90 bags/week

Order cost = $54/order

Annual holding cost = 27 percent of cost

Desired cycle-service level= 80 percent

Lead time = 3 weeks (10 working days)

Standard deviation of weekly demand 15 bags

Current on-hand inventory is 320 bags, with no open orders or backorders

a. What is the EOQ? What would be the average time between orders (in weeks)?

b. What should R be?

c. An inventory withdrawal of 10 bags was just made is it time to reorder?

d. The store currently uses a lot size of 500 bags (i.e., Q = 500). What is the annual holding costof this policy? Annual ordering cost? Without calculating the EOQ, how can you conclude fromthese two calculations that the current lot size is too large?

e. What would be the annual cost saved by shifting from the 500-bag lot size to the EOQ?

Reference no: EM131061719

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