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    Calculating EOQ and Reorder point

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    Inventory Management
    (Reorder Point Calculation)
    A distributor of large appliances needs to determine the order quantities and
    reorder points for the various products it
    carries. The following data refer to a
    specific refrigerator in its product line:
    Cost to place an order- $100

    Holding cost- 20 percent of product cost per year

    Cost of refrigerator - $500 each

    Annual demand- 500 refrigerators

    Standard deviation during lead time - 10 refrigerators

    Lead time- 7 days

    Consider an even daily demand and a 365- year day

    a) What is the economic order quantity?
    b) If the distributor wants a 97 percent service probability, what reorder
    point, R, should be used?
    (z=1.90 for 97%)

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    Solution Preview

    a) What is the economic order quantity?
    D =Total demand= 500 units per year
    S = ordering cost=$100 per order
    H = holding costs=20%*500=$100 per ...

    Solution Summary

    The solution depicts the steps to calculate EOQ and reorder point in the given case.