Owing to the distorted EOQ by this forecast error

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Reference no: EM132226935

Sam’s Cat Hotel operates 52 weeks per year, 6 days per week, & uses a continuous review inventory system. It purchases litter for $11.70 a bag. The following info is available:

Demand= 90 bags week

Order cost= $54/ order

Annual Holding cost= 27 % of cost

Desired cycle-service level= 80%

Lead time= 3 weeks (18 working days)

Standard deviation of weekly demand= 15 bags

Current on-hand inventory is 320 bags, with no open order or backorders.

-Suppose the weekly demand forecast of 90 bags is incorrect and actual demand averages only 60 bags per week. How much higher will total costs be, owing to the distorted EOQ by this forecast error?

-Suppose that actual demand is 60 bags but that ordering costs are cut to only $6 by using the Internet to automate order placing. However, the buyer does not tell anyone and the EOQ is not adjusted to reflect this reduction in S. How much higher will total costs be, compared to what they could be if the EOQ were adjusted?

Reference no: EM132226935

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