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(a)
Interpretation:
The order of size that will minimize S’s costsand the total cost of this order size.
Concept Introduction:
Inventory management is the method of controlling the stocks of the company to protect the company from stocks outs.
(a)
Explanation of Solution
Given information:
It is given that daily demand of the electric energy drink is 25bottles per day, number of working days in the year is
Hence, the order quantity is
(b)
Interpretation:
The number of bottles of electric energy drink using the order size that minimizes S’s total costs.
Concept Introduction:
Inventory management is the method of controlling the stocks of the company to protect the company from stocks outs.
(b)
Explanation of Solution
Given information:
It is given that daily demand of the electric energy drink is 25bottles per day, number of working days in the year is
Calculate the average inventory:
(c)
Interpretation:
The frequency of ordering electric energy drink using the minimum cost order size.
Concept Introduction:
Inventory management is the method of controlling the stocks of the company to protect the company from stocks outs.
(c)
Explanation of Solution
Given information:
It is given that daily demand of the electric energy drink is 25bottles per day, number of working days in the year is
Number of orders are calculated by dividing the annual demand with the order size.
Hence, the number of orders per year is
(d)
Interpretation:
The period in which order for electric energy drink to be placed.
Concept Introduction:
Inventory management is the method of controlling the stocks of the company to protect the company from stocks outs.
(d)
Explanation of Solution
Given information:
It is given that daily demand of the electric energy drink is 25bottles per day, number of working days in the year is
(e)
Interpretation:
The decision to be taken by S, if electric energy drink distributor charge only $0.22 for each bottle.
Concept Introduction:
Inventory management is the method of controlling the stocks of the company to protect the company from stocks outs.
(e)
Explanation of Solution
Given information:
It is given that daily demand of the electric energy drink is 25bottles per day, number of working days in the year is
Hence the order quantity is
The total cost of the firm is less for second condition than the first condition. Thus, the company should buy
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Chapter 10 Solutions
Practical Operations Management
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- An Soda company sells about 400 gallons of its highly demanded beverage each week. The estimated cost to store as well maintain one gallon of this product is $0.50 per week. Each time the Soda company places an order from its supplier, the following costs are incurred, independent of the size of the order: a $300 delivery fee, $50 unloading and storage, and a $60 transaction fee. Once an order is placed, it arrives exactly 2 work days later. The Soda company, supplier, and delivery carrier all operate 7 days per week. Question: What is the optimal (s,Q) policy?arrow_forwardA firm faces a demand of 40,000 units per month for one of its lines of stock. The firm’s cost of holding stock is £2 per unit of average stock per month, and it costs the firm a total of £100 every time it orders and acquires a new shipment of stock. The firm is willing to face stock-outs and the cost of such is £6 per unit of average stock-out per month. Assuming the firm attempts to minimise overall inventory-related costs, how large (approximately) will the firm allow its stock-outs to become before each new stock delivery arrives? A. 782 units B. 577 units C. 904 units D. 981 units * Explain in full detailarrow_forwardAn item with a holding cost of $400 per year can be shipped by air in 1 day, costing $250, or by ground in 5 days, costing $150. Assuming the holding costs of $400 per year are based on an operational year of 365 days, which is cheaper and by how much? Select one: a. Ground is cheaper by $95.62 b. . Air is cheaper by $100. c. Ground is cheaper by $70.89 d. Ground is cheaper by $60.00 e. Ground and air have the same total costarrow_forward
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- A hotel has 200 rooms and 2 fares: low fare, which is $250 per night’s stay, and high fare, which is $350 per night’s stay. The low fare is for leisure travelers who will book first, and the high fare is for business travelers who will book after all leisure travelers have made their booking. Suppose that there are a sufficiently large number of leisure travelers, which means that every room except rooms kept for business travelers will be booked by leisure travelers. If a low-fare room is booked, the hotel will spend $14 in hiring a part-time employee to clean the room ($14/room); if a high-fare room is booked, the hotel will spend $25 in hiring a part-time employee to clean the room thoroughly ($25/room). For both types of rooms, if they are booked, the hotel has to pay $10/room for the consumption of electricity and water. The number of business travelers who want to book a room is discrete uniformly distributed over 41, 42, …, 50. Please find out the optimal protection level for…arrow_forwardWith a probabilistic model, increasing the service level A. will decrease the level of safety stock level. B. will increase the cost of the inventory holding. C. will have no impact on the cost of the inventory policy. D. will reduce the cost of the inventory holding.arrow_forwardA retailer has two stores selling the same product. Weekly demand at store 1 is normally distributed with a mean of 100 and a standard deviation of 10, while weekly demand at store 2 is normally distributed with a mean of 150 and a standard deviation of 25. Demand at the two stores is independent. The retailer orders from a supplier with a 1 week lead time using a periodic review policy with a review period of 1 week, and targets a 95% service level. If the retailer wants to centralize inventory across the two stores, i.e., hold just one stock of inventory to serve demand from both stores, what should the order-up-to level be? PLEASE SHOW CALCULATIONarrow_forward
Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,