Question

An office supply store open 5 days a week must determine the best inventory policy for boxes of copier paper. Weekly demand is nearly constant at 250 boxes and when orders are placed, then entire shipment arrives at once. The cost per box is $22 and the inventory holding cost is 30%. Orders are placed at a cost of $40 each, including preparation time and communication charges, and the lead time is 2 days. a. Find the optimal order quantity. b. What is the reorder point

Answer 1

Answer:

a. 295 boxes

b. 100 boxes

Explanation:

The level at which ordering and storage costs are at minimal is known as the optimal order quantity.

optimal order quantity = √(2×Annual Demand×Ordering Cost per Order) / Holding Cost per unit

Therefore,

optimal order quantity = √((2×250×52×$22) / ($22 × 30%))

                                     = 294.39 or 295 boxes

Reorder point is the point at which the order should be placed to obtain additional inventories.

Reorder Point = Lead Time × Usage during the lead time

Therefore,

Reorder Point = 2 days × (250 boxes ÷ 5 days)

                       = 100 boxes