Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Inventory Management Simulation A discount retail store buys a particular model of DVD player from a distributor and sells it to its customers. The

image text in transcribed

Inventory Management Simulation A discount retail store buys a particular model of DVD player from a distributor and sells it to its customers. The purchase cost of the player is $230 and the selling price is $290. Store management estimates that ordering cost is $100 per order and that it costs $2 to carry each unit in stock for one week. It is assurned that shortage results in a lost sale - with a resulting shortage cost of $60 ($290-$230) per unit short in any period. Forecasted demand is shown for the next 14 weeks. Although demand is variable, in this simulation, the actual demand for any period will never differ from the forecast by more than 50%. You have been put in charge of ordering inventory of this product. You must determine when to place an order and how many units to order each time you order. Orders are placed at the beginning of a week. Replenishment lead time is one week - so products are available for sale at the beginning of the following week. You objective is to minimize total inventory costs (the sum of ordering, carrying, and shortage costs) for the 14- week period. Week Number Row Measure 1 Beginning inventory = #5 from previous week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Purchase cost $230 3 Available inventory (#11 #2) 4 Actual demand 7 4 2 Received - Units from order placed previous week (#7) 22 7 26 Selling price $290 Ordering cost $100 Holding cost (carrying cost) $2 per item per week 3 Shortage $60 5 Ending inventory - #3- #4 (but not less than 0) 4 Forecast error +-50% 6 Forecasted demand 5 5 6 8 14 12 8 6 4 14 24 22 5 Lead time (week) 1 7 Number of units ordered for next week 22 8 Order cost $100 if order is placed in #7 $100 $0 50 $0 $0 $0 $0 50 $0 $0 50 $0 $0 50 9 Average inventory - (43 +45)/2 5.5 10 Carrying cost-$2 *#9 $11 11 Units short (if #4 > #3, #4-#3 otherwise 0) 0 12 Shortage cost = $60 * # 11 $0 13 Total cost #8 + #10+ #12 $111 14 Cumulative cost $111 Actual Demand is randomly generated. Enter this demand 15 in row 7 after you place an order for the week 5 4 4 7 9 6 6 3 4 19 33 30 6 Note: the numbers for actual demand in row 15 will change each time you enter a value on the sheet. Use the current demand when you look it up. This represents random variation in the market.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: J. David Spiceland, Wayne Thomas, Don Herrmann

3rd edition

9780077506902, 78025540, 77506901, 978-0078025549

More Books

Students also viewed these Accounting questions

Question

What action should the board take?

Answered: 1 week ago