Question

Macon Bacon (MB) is a distributor of bacon products. The weekly demand for a 15-lb slab of bacon is normally distributed with mean 600 units per week and standard deviation 63 units per week. It takes 9 days to receive an order delivery (assume 7 days per week) and MB reviews its inventory every 4 days. MB would like to maintain a cycle service level of 95%. MB purchases the slabs from a supplier for $65 per unit. Annual holding cost is 25% of the purchase cost per unit.

a) Compute the annual holding cost for carrying the safety stock. Answer: $_____

Answer 1

Answer (a) compute the annual holding cost for carrying the page: 0 Given details safety stock weekly demand (d)= 600 units od we = 63 1 week lead time (2) 9 days 917 weeks neupow period (p) = 4 days = 417 weeks . For 95.1. Sexvece level, from z table for p=0.95 Z value 1,65 First have to calculate safety stock, 2 x=a x ) -te = 1.65X 63 x 79174417 103.95 x 1.85714 = 1141.664 4 0.25 X unit price = 0.25 x 65 = $16.25 HX safety Stock Annual safely stock = $16.25 141.66 Holding cost () holding cost = $ 2301.97 Answer.