Ray’s Satellite Emporium

1. Ray’s Satellite Emporium wishes to determine the best order size for its best selling satellite dishes. Ray has estimated the annual demand for this model at 1000 units. His cost to carry one unit is $100 per unit per year, and he has estimated the each order costs $25 to place. Using the EOQ model, how many should Ray order each time?

How many order does he place during the year? What is his annual ordering cost?

What is his average inventory level? What is his annual inventory holding cost?

[pic 1] = 22.36 [pic 2] 23 units

Number of orders during the year = D/Q = 1000/23 = 43.48 orders

Annual ordering cost = 43.48 * 25 = $1087

Average inventory level = Q/2 = 23/2 = 11.5 units

Annual inventory holding cost = 11.5 * 100 = $1150

1. Annual demand for a product is 13,000 units; weekly demand is 250 units with a standard deviation of 40 units. The cost of placing an order is $100, and the time from ordering to receipt is 4 weeks. The annual inventory carrying cost is $0.65 per unit. What should be ordering policy for this product? Specifically, what is the order quantity? To provide a 98% service level, what must the reorder point be?

Ordering policy for this product should be an EOQ policy with a safety stock included in the reorder point.

        [pic 3] = 2000 units.

        [pic 4] = 80 units.

From Standard normal distribution, z = 2.06 for 98% service level.

        Safety stock = 2.06 * 80 = 164.8 units

        Reorder point R = 250*4 + 164.8 = 1164.8 = 1165 units.

From the text book

Problem 2

o = $225

h = $1500 x 0.15 = $225

D = 125,000

[pic 5]

[pic 6]

Ordering every other day increases total cost by

[pic 7]

Problem 4

[pic 8]