Question

Gentle Ben's Bar and Restaurant uses 6,400 quart bottles of an imported wine each year. The effervescent wine costs $4 per bottle and is served only in whole bottles because it loses its bubbles quickly. Ben figures that it costs $30 each time an order is placed, and holding costs are 35 percent of the purchase price. It takes two weeks for an order to arrive. Weekly demand is 128 bottles (closed two weeks per year) with a standard deviation of 45 bottles. Ben would like to use an inventory system that minimizes inventory cost and will provide a 95 percent service probability. a. What is the economic quantity for Ben to order

Answer 1

Answer: 523.72 units

Explanation:

Economic Order Quantity = √( 2 * Annual Demand * Order Cost/ holding cost)

holding cost = 35% * Purchase price

= 35% * 4

= $1.40

EOQ = √( 2 * 6,400 * 30/ 1.40)

= 523.72 units