Uses continuous review inventory system

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Reference no: EM132231843

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Sam’s Cat Hotel operates 52 weeks per year, 6 days per week, and uses a continuous review inventory system. It purchases kitty litter for $11.70 per bag. The following information is available about these bags.

Demand = 90 bags / week

Order cost = $54 / order

Annual holding cost = 27 percent of cost

Lead time = 3 weeks (18 working days)

What is the EOQ? What would be the average time between orders (in weeks)?

Suppose that 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 caused 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: EM132231843

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