Economic order quantity - and reorder point

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Reference no: EM1366285

A distributor of large appliances needs to determine the order quantities and reorder points for the various products it carries. The following data refer to a specific refrigerator in its product line:

- Cost to place an order - $100
- Holding cost - 20% of product cost per year
- Cost of refrigerator - $500 each
- Annual demand - 500 refrigerators
- Standard deviation during lead time - 10 refrigerators
- Lead time - 7 days

Consider an even daily demand and a 365-day year.

a) What is the economic order quantity?
b) If the distributor wants a 97 percent service probability, what reorder point, R, should be used?

Reference no: EM1366285

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