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Daily demand for packages of five videotapes at a warehouse store is found to be normally distributed with mean 50 and standard deviation 5

Daily demand for packages of five videotapes at a warehouse store is found to be normally distributed with mean 50 and standard deviation 5. When the store orders more tapes, the ordering cost is $42 and the orders take 4 days to arrive. Each pack of tapes costs $7.20 and there is a 24% annual holding cost for inventory. Assume the store is open 360 days a year. Place answers on lines provided.

a. What is the EOQ? ____________________
b. If the store wants the probability of stocking out to be no more than 5%, and demand each day is independent of the day before, what reorder point should be set? __________________
c. How much of your reorder point in part "b" is safety stock? ________________

Solution Preview

a. What is the EOQ? ____________________

EOQ = SQRT( 2 X DEMAND X ORDERING COST / CARRYING COST)

= SQRT(2 X 50 X 360 X 42 / 24% X 7.2)
=935 ...

Solution Summary

Daily demand for packages of five videotapes at a warehouse store is found to be normally distributed with mean 50 and standard deviation 5. When the store orders more tapes, the ordering cost is $42 and the orders take 4 days to arrive. Each pack of tapes costs $7.20 and there is a 24% annual holding cost for inventory. Assume the store is open 360 days a year. Place answers on lines provided.

$2.19