EOQ Fixed Order Quantity with Certainty

1. In the chart below clearly identify and label (a) the replenishment order quantity, (b) re-order point, and (c) the demand during replenishment lead-time.

2. Assume: Annual demand = 64,000 Value of 1 unit = $320
Carrying cost per $ of inventory = 25%
Cost of placing an order = $400
Replenishment lead-time = 12 days
Assume 365 days in a year

(a) What is the replenishment quantity (to the nearest whole number)?

(b) What is the re-order point?

(c) What is the total annual cost?

TAC = QS + AR Q = √ 2RA
2 Q S

Read the following mini-case for questions 3-6.

Last year Rick Palmer retired from playing gigs and opened a guitar store in his home town of Hobbs, New Mexico. By leveraging his website, sales have grown to a current level of 1,800 per month which comes out at 21,600 units annually. Rick estimates it costs him $8 each time he places an order with his supplier. He would like to grow his business but worries about the $15 cost his assistant manager says it costs to store each guitar.

3. In the case above, what is the value of R?
a) 8
b) 15
c) 1,800
d) 21,600

4. In the case above, what is the value of A?
a) 8
b) 15
c) 1,800
d) 21,600

5. In the case above, what is the value of S?
a) 8
b) 15
c) 1,800
d) 21,600

6. In the case above, what is the value of Q (to the nearest whole number)?
a) 43
b) 152
c) 191
d) 1,800