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Answer:
a) 138 units
b) 17 units
c) 17 units
d) Total Cost = $353.35
Explanation:
Given:
Average pizzas delivered = 200
Charge of inventory holding = 30% of cost
Lead time = 7 days
Now,
a) Economic Order Quantity =
also,
Annual Demand = 200 × 12 = 2400
Cost per Order = Cost of Box + Processing Costs
= 30 cents + $10
= $10.30
and, Carrying Cost =
=
=
= $2.575
Therefore,
Economic Order Quantity =
= 138.56 ≈ 138 units
b) Reorder Point
= (average daily unit sales × the lead time in days) + safety stock
= (
= 46.67 ≈ 47 units
c) Number of orders per year =
=
= 17.39 ≈ 17 units
d) Total Annual Cost (Total Inventory Cost)
= Ordering Cost + Holding Cost
Now,
The ordering Cost = Cost per Order × Total Number of orders per year
= $10.30 × 17
= $175.1
and,
Holding Cost = Average Inventory Held × Carrying Cost per unit
Average Inventory Held = = 69
Carrying Cost per unit = $2.575
Holding Cost = 69 × $2.575 =
$177.675
Therefore,
Total Cost = Ordering Cost + carrying cost
= $175.1 + $177.675 = $353.35