Annual inventory holding cost and transportation cost

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Reference no: EM133825800

Question

Motorola obtains cell phones from its contract manufacturer located in China to supply the U.S. market, which is served from a warehouse located in Memphis, Tennessee. Daily demand at the Memphis warehouse is normally distributed, with a mean of 5,000 and a standard deviation of 4,000. The warehouse aims for a CSL of 99 percent. The company uses sea transportation from China, which has a lead time of 36 days and costs $0.50 per phone. Given the minimum lot sizes, Motorola would order 100,000 phones at a time. Each phone costs $100, and Motorola incurs an annual holding cost of 20 percent. Assume that Motorola takes ownership of the inventory on delivery and there are 360 days in a year. What is the pipeline (in-transit) inventory? What is Motorola's annual inventory holding cost and transportation cost?

Reference no: EM133825800

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