--%>
Assignment Help - homework help

Order Quantity-Cycle Inventory-Safety Inventory

Consider the following data pertaining to a distribution center.

2446_distribution centre.jpg

Ordering cost: $50 /order
Holding cost: $4 /unit /week.
Cycle service level: 97%

Summary:

The question is related to cost accounting in finance. It deals with measures such as Order Quantity, Cycle Inventory, Safety Inventory, Reorder Level, Annual Inventory Holding, Annual Ordering Cost, etc. All these measures are calculated according to given cost and time.

E

Expert

Verified

Consider the following data pertaining to a distribution center.

Mean Weekly Demand(d): 100
Standard Deviation  of Weekly Demand(Sd): 30
Lead Time(L): 2 Weeks
No. of weeks in year: 50


Ordering cost (Cp): $50 /order
Holding cost (Ch): $4 /unit /week.
Cycle service level: 97%  
Z – value for service level 97 % = 1.89
Annual demand (D) = d * No. of weeks = 100 * 50 = 5000 units
Standard deviation of weekly demand during lead time =SL = sqrt( sum of squares of ‘Sd’ during the ‘L’ number of weeks) = sqrt( 302 + 302) = 42.42 units

Order Quantity = Q = sqrt( (2 * D * Cp)/Ch) 
              = sqrt((2* 5000 * 50)/4)
              = 353.55 units
              =354 units approx

Cycle inventory = Q/2 
    = 353.55/2 
    = 176.775 units
    = 177 units approx

Safety inventory = z* SL 
     = 1.89 * 42.42 
    = 80.18 units
    = 80 units approx

Re-Order Level = d*L + z* SL
     = 100*2 + 1.89*42.42
    = 280 units approx

Annual Inv Holding Cost = (Q/2)*Ch
      = 353.55/2 * 4
      = $ 707 approx

number of orders per year
= D/Q
= 5000/353.55
=14.14

Annual ordering cost = (D/Q) * Cp
              = 5000/353.55 * 50
              =$ 707 approx

   Related Questions in Finance Basics

  • Q : Explain Appropriated Revenue

    Appropriated Revenue: The revenue which, as it is earned is reserved and appropriated for a particular aim. An illustration is student fees received by state colleges which are by law appropriated for the support of the colleges. The

    		•
  • Q : How does depreciation influence cash

    Normal 0 false false

    		•
  • Q : Making capital structure decisions In a

    In a perfect capital market, what advice would you give a corporate financial manager on making capital structure decisions? Justify your advice. How and why would your advice change as real world capital market imperfections are introduced?

    Q : Explain Year of Budget Year of Budget

    Year of Budget (YOB): In this the fiscal year revenues and expenses are recognized. For revenues, this is usually the fiscal year whenever revenues are earned. For expenses, this is usually the fiscal year whenever obligations, compri

    		•
  • Q : Define Fiscal Impact Analysis Fiscal

    Fiscal Impact Analysis: Usually refers to a section of an analysis (example, bill analysis) which recognizes the costs and revenue impact of a proposal and, to the level possible, a particular numeric estimate for appropriate fiscal years.

    		•
  • Q : What is an Initiative Initiative : The

    Initiative: The power of electors to propose statutes or Constitutional amendments and to accept or reject them. An initiative should be limited to a single subject and be filed with the Secretary of State with the suitable number of voter signatures

    		•
  • Q : Explain Administration Program Costs

    Administration Program Costs: It is the indirect cost of a program, usually a share of the costs of the administrative units serving the whole department (example, the Director's Office, Personnel, Legal, Accounting, and Business Serv

    		•
  • Q : Define Budget Year Budget Year (BY) :

    Budget Year (BY): The next state fiscal year, starting July 1 and ending June 30, for which the Governor's Budget is proposed (that is, the year following the present fiscal year).

    		•
  • Q : Explain Equity Financing Equity

    Equity Financing: New or small businesses might find it hard to get debt financing therefore they turn to equity funding. The Equity financing frequently comes from non-professional investors like family, friends, or employees. This can as well come f

    		•
  • Q : Explain Plan of Financial Adjustment

    Plan of Financial Adjustment (PFA): This is the plan proposed by a department, accepted by the Department of Finance, and acknowledged by the State Controller's Office (SCO), to allow the SCO to assign costs paid from one item to one

    		•