Description
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Explanation & Answer
Kindly see attached file with the step by step solution to the three problems.
1. A local company sells many varieties of shoes. For one particular line, the
company buys the shoes for $15.00 and sells them for $30.00. The cost of placing
an order for the shoes is $50.00, and it takes a week before the shoes arrive.
Annual demand for the shoes is approximately normally distributed with a mean
of 5,200 pairs and a standard deviation of 520 pairs. The cost for holding shoes in
inventory is $.12 per dollar value per year. If shoes are out of stock, the goodwill
cost is estimated to be $5.00 per pair, and the sale is lost. Find the optimal
ordering policy for the shoe company. (12)
DATA:
• Buying price = $15/unit
• Selling price = $30/unit
• Order cost = $50
• Lead time = 1 week
• Annual demand = 5200 units
• Standard deviation for annual demand = 520
• Annual holding cost = $0.12/unit
• Stock out cost = $5/unit
CALCULATIONS:
To evaluate which is the optimal ordering strategy of the company we need to estimate:
Economic order quantity
Target service level
Restock level
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These variables are calculated below:
Estimation of the economic order quantity:
𝐸𝑂𝑄 =...