Reorder point-optimal order-total carrying cost

Reference no: EM13102621

The manager of a car wash receives pricing schedule (shown below) from the vendor who supplies soap- and a promise of a 25% shorter lead time for deliveries. Currently, lead time is 4 days. Annual usage of soap is 4500 gallons. The car wash is open 360 days a year. Ordering Costs is $ 30 per order and annual holding costs are $ 3 per gallon. Daily usage is normally distributed, the standard deviation of soap 2 gallons.

Quantity Unit Price

1-399 $2.00

400-799 $1.70

800+ $1.62

a. What is the optimal order quantity?

b. What is the reorder point if the acceptable probability of stock-out is 1.5%?

c. What is the total carrying cost at the optimal ordering quantity?

Reference no: EM13102621

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