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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 Summary

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

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 provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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