question archive The new office supply discounter, Paper Clips, Etc
The new office supply discounter, Paper Clips, Etc
Subject:ManagementPrice:2.87 Bought7
The new office supply discounter, Paper Clips, Etc. (PCE, sells a certain type of ergonomically correct office chair which costs $300. The annual holding cost rate is 40%, annual demand is 900, and the order cost is $20 per order. The lead time is 4 days. Because demand is variable (standard deviation of daily demand is 2.4 chairs. PCE has decided to establish a customer service level of 90% The store is open 300 days per year
1. What is the optimal order quantity?
2. What is the safety stock?
3. What is the reorder point?
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Answer:
(a).
Ans:
Annual demand = 900
Ordering Cost = $20
Holding Cost = 0.40 * 300 = $120
Optimal Order Quantity = √((2 * Annual Demand * Ordering cost) / Holding Cost)
= √ (( 2 * 900 * 20) / 120) = 17.32 = 17 chairs
(b)
Ans:
Safety Stock = Z * Standard Deviation * √ ( Lead Time)
= 1.28 * 2.4 * √ (4) = 6.14=6 chairs
Note: 90% of Z=1.28
(c)
Ans:
Daily Demand = 900 / 300 = 3 chairs
Reorder Point = (Daily Demand * Lead Time) + Safety stock
= (3 * 4) + 6 = 18 chairs
