Calculate the reorder point and the corresponding safety

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Reference no: EM13394990

The manager of a construction firm has determined from historical records that demand for cement averages 5 tons per week with a standard deviation of 3 tons. The supply lead time is 4 weeks. The cost of a ton of cement is $100 and inventory carrying cost is estimated at an annual rate of 30%. The cost of placing an order is $96.

[Assume 50 weeks in a year.]

Compute the following:

a. Economic order quantity

b. Number of orders per year

c. Cycle length (i.e., number of weeks between consecutive orders)

d. Average inventory level

e. Total annual cost of ordering + inventory carrying

f. Compute the reorder point and the corresponding safety stock for each of the following service levels:

90%
95%
99%
99.9%
99.99%

Reference no: EM13394990

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