Economic Order Quantity
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Tax Preparers Inc. works 250 days per year. The company uses adding machine tape at a rate of eight rolls per day. Usage is believed to be normally distributed with a standard deviation of three rolls during lead time. The cost of ordering the tape is $10 and holding costs are $0.30 per roll per year. Lead time is two days.
(a) Calculate the economic order quantity. (Round your answer to 1 decimal place, the tolerance is +/-0.1).
(b) What reorder point will provide an order cycle service level of 97 percent? (Round up your answer to the nearest whole number).
(c) How much safety stock must the company hold to have a 97 percent order-cycle service level? (Round your answer to 2 decimal places, the tolerance is +/-0.01).
(d) What reorder point is needed to provide an order-cycle service level of 99 percent? (Round up your answer to the nearest whole number)
(e) How much safety stock must the company hold to have a 99 percent order-cycle service level? (Round your answer to 2 decimal places, the tolerance is +/-0.01).
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Solution Summary
The solution discusses the determination of Economic Order Quantity and related problems.
Solution Preview
It is given that:
Average daily demand, d = 8
Ordering cost, S = $10
Holding cost, H = $0.30
Lead time in ...
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