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Calculating EOQ, safety stock and inventory costs

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Given the following information, determine an inventory management system for an item in demand 50 weeks/year.
Item Cost $10
Order Cost $250
Annual Holding Cost $3.33/unit
Annual Demand 25,750
Weekly demand 515
Std Dev of Demand 25/week
Lead Time 1 week
Std Dev of Lead Time 0.1 week
Service Level 95%

a. State the order quantity and re-order point
b. Determine the annual holding and order costs
c. If a price break of $50/order was offered for orders over 2000 units, should you plan on 2000 unit orders?

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Solution Summary

Solution depicts the methodology to find EOQ, safety stock and inventory costs in the given case.

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See Also This Related BrainMass Solution

Inventory Management: Calculating Safety Stock, Re-Order point, EOQ, Average Inventory, and Total Inventory Cost

The average demand faced by a retailer in the past is 200 units/day with a standard deviation of daily demand of 15 units/day. The fixed cost to order is $1,000, and the product cost is $50 per units. The daily holding cost is 20% of the product cost. The lead time is 6 days.

Given that the retailer wishes to maintain a service level of 86%, calculate the:
(a) Safety Stock
(b) Re-order point
(c) EOQ
(d) Average inventory level
(e) Annual total inventory cost

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