Problem 20-15

Given the following information, formulate an inventory management system. The item is demanded 50 weeks a year.

Item cost	$	9.00		Standard deviation of weekly demand	20	per week
Order cost	$	202.00		Lead time	1	week
Annual holding cost (%)		28	% of item cost	Service probability	90	%
Annual demand		24,000
Average demand		480	per week

a.	Determine the order quantity and reorder point. (Use Excels NORMSINV( ) function to find your z-value and then round that z-value to 2 decimal places. Do not round any other intermediate calculations. Round your final answers to the nearest whole number.)

Optimal order quantity	units
Reorder point	units

b.	Determine the annual holding and order costs. (Do not round any intermediate calculations. Round your final answers to 2 decimal places.)

Holding cost	$
Ordering cost	$

c.

Assume a price break of $50 per order was offered for purchase quantities of 2,000 units per order. If you took advantage of this price break, how much would you save annually? (Do not round any intermediate calculations (including number of setups per year). Round your final answer to 2 decimal places.)

Annual savings

$