Reference no: EM133059229

Question - Sparrow and Nightingale is a furniture retailer. They sell 2,500 queen size beds during the course of a year, and the demand is relatively constant throughout the year. These beds are purchased from a supplier 200 miles away for $150 each, and the lead time is 2 days. The holding cost per bed per year is $15, and the ordering cost per order is $187.50. There are 250 working days per year.

1. What is the EOQ?

2. Given the EOQ, what is the annual inventory holding cost?

3. Given the EOQ, what would be the annual ordering cost?

4. What is the re-order point (ROP)?

5. After a careful analysis about the demand during the lead time, the Sparrow and Nightingale purchasing manager noted that the demand during lead time is not constant; rather, it is normally distributed with a standard deviation of 1.5. Lead time is 2 days and average demand per day is 10 beds. (2500 beds per year/250 days per year = 10 beds per day). Appropriate for service level is selected as 98%. (Z values are given in the Tables). What safety stock should they maintain if 98% service level is required?

6. What is the adjusted re-order point for beds when demand is variable?