# Safety Stock and Economic Order Quantity

Attached are further guidance instructions for each question

Application assignments require solving problems from the textbook. Most of the problems require that you use Excel QM, however some chapters will require you to use the Solver Add-In for Excel (regression) or simply type in formulas and make calculations. The answers must be submitted to D2L in a Microsoft Word or Microsoft Excel file. You must state your answers within a complete sentence so that your understanding of applying the results of the computations can be observed. You should also include the work for your computation; this will assist in applying partial credit if your answers are not correct.

23. Barbara Bright is the purchasing agent for West Valve Company. West Valve sells industrial valves and fluid control devices. One of the most popular valves is the Western, which has an annual demand of 4,000 units. The cost of each valve is \$90, and the inventory carrying cost is estimated to be 10% of the cost of each valve. Barbara has made a study of the costs involved in placing an order for any of the valves that West Valve stocks, and she has concluded that the average ordering cost is \$25 per order. Furthermore, it takes about two weeks for an order to arrive from the supplier, and during this time, the demand per week for West valves is approximately 80.

a.What is the EOQ?

b.What is the ROP?

c.Is the ROP greater than the EOQ? If so, how is this situation handled?

d.What is the average inventory? What is the annual holding cost?

e.How many orders per year would be placed? What is the annual ordering cost?

46. For SKU A3510 at the Hardware Warehouse, the order quantity has been set at 150 units each time an order is placed. The daily demand is normally distributed, with a mean of 12 units and a standard deviation of 4. It always takes exactly five days for an order of this item to arrive. The holding cost has been determined to be \$10 per unit per year. Due to the large sale volume of this item, management wants to maintain a 99% service level.

a.What is the standard deviation of demand during the lead time?

b.How much safety stock should be carried, and what should be the reorder point?

c.What is the total annual holding cost?