What is the length of the inventory cycle in days

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Reference no: EM132241546

Shoppers Drug Mart (SDM) sells Life Brand Hydrogen Peroxide in 500 millilitre bottles. SDM sells these to customers for $3.00 each and SDM’s variable cost to buy them is $1.00. They sell 2,000,000 bottles of Hydrogen Peroxide annually. SDM estimates that the monthly cost of holding these bottles of Hydrogen Peroxide in inventory is 1% of the purchase cost, due to their bulk, weight, and perishability. The Cost Accounting Department recently did a study of the ordering and receiving process and determined that the fixed cost of placing an order is $432, much of that in the receiving and testing the Hydrogen Peroxide when it arrives from the supplier. Assume 365 working days in year.

Required:

(a) How many bottles of Hydrogen Peroxide should SDM order to minimize the inventory cycle cost?

(b) How many orders per year are placed?

Show all your work

In addition to the information above, you are provided with the following new information that applies ONLY TO PART (D):

(d) The supplier has offered a 4% discount if SDM orders at least 250,000 bottles on an order, which will rise to a 10% discount if they order a minimum of 1,000,000 bottles on an order. Determine the optimal order size given this new information. Show all your work.

(e) SDM typically receives the Hydrogen Peroxide orders one week (7 days) after placing them. They sell 2,000,000 bottles of Hydrogen Peroxide annually. The standard deviation of daily demand for Hydrogen Peroxide is 500 bottles per day. What is the order point to limit the probability of stockout to 1.25%? Show all your work.

Reference no: EM132241546

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