Answer:
a. On average, the number of boards they have on order = 1,056 boards.
b. On average, the number of boards they have =560 boards.
c. Total holding cost per week = $140.
d. Holding cost incurred per board = $ 0.25.
Explanation:
In the question, the details given are:
Service level =96 %
Lead time =3 weeks
Weekly demand =150
Standard deviation=200
This is a case of variable demand and constant lead time
a. Reorder point =Demand during lead time +Safety stock
=Average weekly demand*lead time+z*sqrt(lead time)*standard deviation of weekly demand
=150*3+NORMSINV(0.99)*sqrt(3)*200
=450+1.7507*sqrt(3)*200
=450+606.46=1,056.46
=1,056 (nearest whole number).
On average, the number of boards they have on order = 1,056 boards.
b. For a normal distribution,
z=x-mean/std deviation
z-value for a 96% confidence level = 2.05
2.05=x-150/200
x = 150+2.05*200=560
On average, the number of boards they have =560 boards.
c.Total holding cost per week=Average inventory *holding cost per week=560/2 *0.5=280*0.5 =$140
d.Holding cost incurred per board =Total holding cost /Number of boards =140/560 = $ 0.25.
