Exhibit 12.3
The following questions use the information below.
An auto parts store wants to simulate its inventory system for engine oil. The company has collected data on the shipping time for oil and the daily demand for cases of oil. A case of oil generates a $10 profit. Customers can buy oil at any auto parts store so there are no backorders (the company loses the sale and profit). The company orders 30 cases whenever the inventory position falls below the reorder point of 15 cases. Orders are placed at the beginning of the day and delivered at the beginning of the day so the oil is available on the arrival day. An average service level of 99% is desired. The following spreadsheets have been developed for this problem. The company has simulated 2 weeks of operation for their inventory system. The current level of on-hand inventory is 25 units and no orders are pending.
-The average demand is 4.45 cases per day. Using the information in Exhibit 12.3, what formula should go in cell H4 to determine the average lost sales?
A) =H3*4.45*10*30
B) =(1-H3)*4.45*10
C) =(1-H3)*4.45*30
D) =(1-H3)*4.45*10*30

Question

Exhibit 12.3
The following questions use the information below.
An auto parts store wants to simulate its inventory system for engine oil. The company has collected data on the shipping time for oil and the daily demand for cases of oil. A case of oil generates a $10 profit. Customers can buy oil at any auto parts store so there are no backorders (the company loses the sale and profit). The company orders 30 cases whenever the inventory position falls below the reorder point of 15 cases. Orders are placed at the beginning of the day and delivered at the beginning of the day so the oil is available on the arrival day. An average service level of 99% is desired. The following spreadsheets have been developed for this problem. The company has simulated 2 weeks of operation for their inventory system. The current level of on-hand inventory is 25 units and no orders are pending.   
-The average demand is 4.45 cases per day. Using the information in Exhibit 12.3, what formula should go in cell H4 to determine the average lost sales?
A) =H3*4.45*10*30 
B) =(1-H3)*4.45*10 
C) =(1-H3)*4.45*30 
D) =(1-H3)*4.45*10*30

Quizplus · Accepted Answer

The formula for average lost sales is the demand that exceeds the inventory position times the profit per case. In this case, the demand that exceeds the inventory position is (average demand - inventory position) and the profit per case is $10. Therefore, the formula should be (average demand - inventory position) * $10 * 30 (since the company orders 30 cases at a time). This is equivalent to (1 - H3) * 4.45 * $10 * 30.

Exhibit 12.3 The Following Questions Use the Information Below