Your firm uses a continuous review system (Q system), where the inventory position is updated after every transaction. The firm operates 52 weeks per year. One of the items has the following characteristics:
Demand $= 14,560$ units per year
Ordering cost $= \$ 40$ per order
Holding cost $= \$ 6$ per unit
per year Lead time $= 2$ weeks
Standard deviation in weekly demand $= 100$ units
Cycle-service level $= 80$ percent
If Q is made equal to the EOQ, what are the desired values for Q and R?
A) Q is between 65 and 69, and R is between 362 and 366.
B) Q is between 439 and 443, and R is between 559 and 563.
C) Q is between 439 and 443, and R is between 678 and 682.
D) Q is between 65 and 69, and R is between 398 and 402.

Question

Your firm uses a continuous review system (Q system), where the inventory position is updated after every transaction. The firm operates 52 weeks per year. One of the items has the following characteristics: 
Demand $= 14,560$ units per year 
Ordering cost $= \$ 40$ per order
Holding cost $= \$ 6$ per unit
per year Lead time $= 2$ weeks
Standard deviation in weekly demand $= 100$ units
Cycle-service level $= 80$ percent 
If Q is made equal to the EOQ, what are the desired values for Q and R?
A) Q is between 65 and 69, and R is between 362 and 366.
B) Q is between 439 and 443, and R is between 559 and 563.
C) Q is between 439 and 443, and R is between 678 and 682.
D) Q is between 65 and 69, and R is between 398 and 402.

Quizplus · Accepted Answer

The EOQ is calculated using the formula $\sqrt{\frac{2DS}{H}}$, which gives approximately 441. The reorder point R is calculated using the formula $dL + z\sigma_L$, where $d$ is the demand per week, $L$ is the lead time in weeks, $z$ is the z-score for the cycle-service level, and $\sigma_L$ is the standard deviation of demand during lead time. For an 80% service level, $z$ is approximately 0.84. This results in R being approximately 680.

Your Firm Uses a Continuous Review System (Q System), Where =14,560= 14,560=14,560

Your Firm Uses a Continuous Review System (Q System), Where $= 14,560$