Use inventory system that minimizes inventory cost

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Reference no: EM131753885

Gentle Ben's Bar and Restaurant uses 7,300 quart bottles of an imported wine each year. The effervescent wine costs $4 per bottle and is served only in whole bottles because it loses its bubbles quickly. Ben figures that it costs $5 each time an order is placed, and holding costs are 30 percent of the purchase price. It takes three weeks for an order to arrive. Weekly demand is 146 bottles (closed two weeks per year) with a standard deviation of 30 bottles.

Ben would like to use an inventory system that minimizes inventory cost and will provide a 90 percent service probability.

a. What is the economic quantity for Ben to order? (Round your answer to the nearest whole number.)

b. At what inventory level should he place an order? (Use Excel's NORMSINV() function to find the correct critical value for the given α-level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.)

Hint: this is a continuous review system, similar to Alt-Cat 20.3. If you don't know how to use NORMSINV() function to find the z-value for a given % level, watch the "Hint" video by clicking the "Hint" button on the left.

Reference no: EM131753885

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