Question

Sarah's Muffler Shop has one standard muffler that fits a large variety of cars. Sarah wishes to establish a reorder point system to manage inventory of this standard muffler. Annual demand 4,700 mufflers Ordering cost $ 60 per order Standard deviation of daily demand 5 mufflers per working day Service probability 90 % Item cost $ 25 per muffler Lead time 3 working days Annual holding cost 20 % of item value Working days 300 per year Use the above information to determine the best order size and the reorder point: (Use Excel's NORMSINV() function to find the correct critical value for the given α-level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.) Best order size mufflers Reorder point mufflers

Answer 1

Answer:

Following is the solution for the given problem.

Explanation:

Best order size, EOQ =√2DS/H

EOQ = √2*4700*60/5

EOQ = 336 units.

D = 4700/300 = 15.66.

σ L= √∑σ²

= √3*(5)² = 8.66.

Reorder point, R = D*L+ z σ L

Reorder point, R = 15.66*3 + 1.282*8.66

Reorder point, R = 58 units.