Reference no: EM132689786

A discount appliance store sells iPhones. The store purchases iPhones at a price of $95 per unit. The following information applies to this product.

• Demand = 20 units/day
• Order cost = $56/order
• Annual holding cost = 25% of purchase price
• Desired cycle-service level = 90% (z=1.28)
• Lead time = 10 days
• Standard deviation of daily demand = 4 units
• Current on-hand inventory 220 units, with no open orders or back orders

The store operates 52 weeks per year, 6 days per week. It has a continuous inventory review system.

a) What is the EOQ?

b) What should R be?

c) An inventory withdrawal for 10 units was just made. Is it time to reorder?

d) The store currently uses a lot size of 500 units (that is, Q = 500). What is the annual holding cost of this policy? Annual ordering cost?

e) What is the annual cost saved by shifting from the 500-unit lot size to the EOQ

Suppose that the discount appliance store uses a P system instead of a Q system. They order inventory every 12 days.

f) What should T be?

g) How much more safety stock (than with a Q system) is needed?

h) It is time for the periodic review. How much should be ordered?