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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). SHOW ALL YOUR WORK!
- Economic Time Interval (T) (NOTE: T = Q*/D) ,
- Optimal Replenishment Level (M) (NOTE: M = d*(T+L)), and
- 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
Expert Solution
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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