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Homework answers / question archive / Using the following given information, calculate the following for a Fixed Period Inventory System (aka Periodic Order Quantity or POQ)

Using the following given information, calculate the following for a Fixed Period Inventory System (aka Periodic Order Quantity or POQ)

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Using the following given information, calculate the following for a Fixed Period Inventory System (aka Periodic Order Quantity or POQ). SHOW ALL YOUR WORK!

  1. Economic Time Interval (T) (NOTE: T = Q*/D) ,  
  2. Optimal Replenishment Level (M) (NOTE: M = d*(T+L)), and  
  3. Explain how this system would work in a sentence or two.

Given Information:

  • Weekly Demand (d) = 200 cases per week
  • Lead Time (L) = 2 weeks
  • Order Cost (Co or S) = $60 per order
  • Holding Cost (Ch or H) = $1.50 per case
  • Number of Week Per Year = 52 weeks

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solution :

1)

Economic time interval (T) = [ (Economic Order Quantity / annual demand ) * no of weeks in a year )

EOQ = sqrt[ (2*Demand* Order cost ) / Holding cost ]

= sqrt [ (2 * 200 * 52 * 60 ) / 1.50]

= sqrt [ 1248000 /1.50 ]

= sqrt [832000]

= 912.14 ~ 913 cases

Annual demand  = 52*200 = 10400 cases

Economic time interval (T) = [ (913 / 10400) * 52 ]

= 0.08778 * 52

= 4.56 weeks  

(2)

Optimal Replenishment Level = Consumption (weekly demand)  * lead time  

= 200 * 2 

= 400 cases

Here order can be placed only after the fixed interval of time as we are following the fixed period inventory system irrespective of order quantity.

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