Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. operations management
  3. the so's hobby shop carries a line of radio-contro

The So's Hobby Shop carries a line of radio-controlled model racing cars. Average daily demand for...

Free

80.2K

Verified Solution

Question

Operations Management

The So's Hobby Shop carries a line of radio-controlled modelracing cars. Average daily demand for the model cars is 100 with astandard deviation of 30. Unit inventory holding cost is estimatedat $0.90/year. The shop purchases the model cars from one supplier.It is estimated that the ordering cost is $100 per order. Thedelivery lead time is 10 working days. Mr. So decides to use aReorder Point System to control the inventory of the model cars andwants to achieve a service level of 90%. Assume 300 working daysper year.

  1. (3 points) Determine the optimal reorder point R and orderquantity EOQ. (Hint: R = average demand during lead time + safetystock)
  1. (3 points) Using the R and Q determined in part a), what is theaverage inventory in the shop? (Hint: average inventory = EOQ/2 +safety stock)
  1. (4 points) Mr. So is considering a new supplier who can deliverthe same line of model cars with a perfectly reliable lead time ofonly 3 working days. Estimate the potential annual savings ininventory holding cost by switching to this new supplier. (Hint:the saving = holding cost * reduction of average inventory)

Answer & Explanation Solved by verified expert
4.4 Ratings (644 Votes)

a)

Daily Demand µD = 100
Standard Deviation of Daily Demand σD = 30
Working days per year n = 300
Annual Demand D = n*µD 30,000
Lead Time (Days) L = 10
Desired Service level α = 90%
Z-value corresponding to Service Level Zα = NORMSINV(α) 1.28
Safety stock ss = ZασD √L 121
Reorder Point R = µD*L + ss 1,121
Annual Holding Cost per Unit H = $0.90
Ordering Cost per Order S = $100
Optimal Order Qty Q* = √(2SD/H) 2,582

Optimal reorder point, R = 1121

EOQ = 2582

-------------------------------------------------------------------------------------------------------

b)

Average inventory = EOQ/2 + Safety stock

= 2582/2 + 121

= 1412

-------------------------------------------------------------------------------------------------------

c)

New lead time, L = 3 days

Revised safety stock = 1.28*30*sqrt(3)

= 67

EOQ remains unchanged.

New average inventory = 2582/2+67

= 1358

Reduction in average inventory = 1412 - 1358

= 54

Savings = 54*0.9

= $ 48.6
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Finance
1.2K views

8) Acort Industries has 10 million shares outstanding and a current share price of $40 per...

Chemistry
1.2K views

What is happening to the electron relative to the nucleus when ?E=0? ?E>0? ?E<0?

Chemistry
1.2K views

what is the net ionic equation of Fe3+ and Br-, the species oxidized/reduced. what is the net...

General Management
1.2K views

1. Rock Valley Airport is beginning to experience flight congestion and backups on the one runway that...

General Management
1.2K views

How does increased globalization affect U.S. managers, labor leaders, and workers in a unionized workplace? Does...

Calculus
1.2K views

Use the Binomial Theorem to expand and simplify the expression x 1 5

Algebra
1.2K views

Find the product of the following 2 14x 45 3x 2x 1 6x 3x 2x...

Accounting
1.2K views

nit: 1:15:00 Time Left:0:49:28 Amber Evraets: Attempt 1 2 3 Question 8 (4 points) 5...

Accounting
1.2K views

A merchandiser, provides the following information for its December budgeting process: November 30 inventory 1,900...

Accounting
1.2K views

On October 1, 2021, Helmsmith Corporation declared and issued a 10% common stock dividend. Before...

Accounting
1.2K views

If I wish to make things in the future should I buy a financial accounting...

Finance
1.2K views

4) If an investment provides a 1.25% return quarterly, its effective annual rate is A)...