Kelly opens an aquarium store in a lively shopping mall and finds business to be booming, but she often stocks out of key items customers want. She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems. The Fluval 303 pump, a high margin and profitable pump, is one of her best sellers, but it stocks out frequently. She collects the following data about the pump’s sales.
Demand = 10 units per week Store operates 45 weeks/year
Order cost = $30/order Lead time = 3 weeks Item cost = $80/pump
Standard deviation of weekly demand = 4 units Inventory-holding cost = 15% per year
Desired service level = 90 percent
The economic order quantity (EOQ) rounded to the next highest number is:
a. more than 45 but less than or equal to 55 pumps.
b. less than 25 pumps.
c. more than 35 but less than or equal to 45 pumps.
d. more than 25 but less than or equal to 35 pumps.