Question

Five Seasons Hotel replenishes 30,000 bars of high-quality soaps per year for its hotel rooms.

The ordering cost is $50 per order.

The annual carrying cost is $8.25 per unit.

The lead time is 5 days.

The hotel operates 365 days a year.

In order to protect the hotel against uncertainty in demand for soaps, the hotel maintains a safety stock of 300 bars of high-quality soaps.

a. What is the Total Annual Inventory Cost?

b. What is the Total Number of Orders placed per Year?

c. What is the Re-Order Cycle?

d. What must be the hotel’s minimum inventory level for those high-quality soaps?

e. What should be the hotel’s maximum inventory level for those high-quality soaps?

Answer 1

Answer:

	Days per year=		365
	Annual demand, D=		30000
	Order cost or setup cost, S		$50.0
	holding cost per year, H=		$8.250
	Lead time, LT		5.00
	Economic Order quantity, Q=	squareroot(2*S*D/H)	603.0
Answer b	#orders per year =	D/Q	49.75
	annual holding cost=	Q*H/2	$2,487.47
	Annual ordering cost=	D*S/Q	$2,487.47
Answer a	total ordering+holding cost		$4,974.94
Answer c	reorder cycle=	days per year/orders per year	7.34 days

Answer d: min. inventory level is the safety stock of 300 units

Answer e: Max inventory level, is when the order arrives= 300+ 603= 903