question archive You are the manager of the Manero Paint store, large paint outlet
You are the manager of the Manero Paint store, large paint outlet
Subject:FinancePrice:2.86 Bought3
You are the manager of the Manero Paint store, large paint outlet. One big demand item is color NUmber 107 (passion fire) latex paint in one-gallon containers. Manero paint sells 10000 containers of this paint every year. Demand is normally distributed with a standard deviation of 2000 units. Passion fire costs 7.50$ per container. The lead time from order to delivery is 10days with a standard deviation of 3 days. Holding costs are 16% per year and the fixed costs of placing an order are 80$. if Manero Paint stocks out of Passion Fire, It incurs 500$ in stockout costs. The replenishment rate is infinite. Use a36 day year.
a. Calculate the optimum order quantity & the optimum safety Stock.
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Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs.
EOQ = √ 2DS/H
D = Demand in units on annual basis
S = Ordering cost per purchase order
H= Holding cost per unit per year
D= 10000 units
S= $80
H = 16% of 7.50 = 1.2
EOQ = √ (2*10000*80)/1.2
= 1155 units
Hence EOQ is 1155 units are Optimum order quantity
