Total annual inventory cost including safety stock

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Reference no: EM132238252

Speedy Bicycle Company (SBC) is a wholesale distributor of a wide variety of bicycles and bicycle parts. The most popular model is the Dragonfly, which sells for $170. All manufacturing is done at a plant in China, and shipment takes a month (30 days) from the time an order is placed. The estimated order cost is $75, including customs clearance. SBC’s cost per bicycle is 65% of retail price, and inventory carrying cost is 11% per year of SBC’s cost. If the company cannot fulfill a retail order, the retailer will get the shipment from another distributor and SBC loses that business. SBC is planning inventory for 2019 based on forecasted demand and wants to maintain a 93% service level to minimize lost orders. The company has 300 working days per year.

2019 Forecasted Demand for the Dragonfly Bicycle Model:

J F M A M J J A S O N D

8 15 31 58 96 59 38 23 16 14 26 41

Develop an inventory plan for the Dragonfly model.

Get organized:

Order cost = $__________ per order

Cost per bicycle = $_____________

Annual holding cost per bicycle = $__________

Service level = _________% so z = __________

Lead time = __________ days

Annual demand for 2019 = __________ bicycles

Answer: (Show work and put answer in blank to receive credit. Work can be on back of page.)

1. What is the economic order quantity?

Q = __________ (round to nearest whole number)

2. If average demand during lead time is normally distributed with a standard deviation of 2.5 bicycles, what is the

reorder point with the desired service level?

Safety stock = __________ bicycles

ROP = __________ bicycles

3. What is the total annual inventory cost including safety stock?

$______________

4. If SBC is currently ordering 100 bicycles at a time, how much is the company overpaying in total inventory cost?

$______________

5. Each year during their anniversary celebration, SBC offers a collectable water bottle at the special price of $5. They typically sell 100 bottles with a standard deviation of 12 bottles. The cost of each bottle is $1.50, and any unsold inventory is donated to a local charity. What is the service level and optimal order quantity for the water bottles?

Service level = _____________________

Optimal order quantity = ________________________

Reference no: EM132238252

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