The Cosmopolitan store wants to use a periodic review system for its basic apparel product. The product has an annual demand of 7,200 units. Their order cost is $75, and their inventory carrying cost is 18% per dollar per year. The cost of each product is $20. The purchase order lead time is 1 week, and the average daily demand is 18 units, with a standard deviation of 4 units. Cosmopolitan would like to maintain a 99% service level.
-What is the EOQ size of each order?

Question

Quizplus · Accepted Answer

The EOQ (Economic Order Quantity) is calculated using the formula: EOQ = sqrt((2 * Demand * Order Cost) / Carrying Cost). Here, Demand = 7,200 units, Order Cost = $75, Carrying Cost = 18% of $20 = $3.6. Plugging these values into the formula gives EOQ = sqrt((2 * 7200 * 75) / 3.6) = 548 units.

The Cosmopolitan Store Wants to Use a Periodic Review System