Question

A small copy center uses five 500-sheet boxes of copy paper a week. Experience suggests that usage can be well approximated by a normal distribution with a mean of five boxes per week and a standard deviation of one-half box per week. One weeks are required to fill an order for letterhead stationery. Ordering cost is $3, and annual holding cost is 25 cents per box. Use Table. a. Determine the economic order quantity, assuming a 52-week year. (Round your answer to the nearest whole number.) EOQ boxes b. If the copy center reorders when the supply on hand is 6 boxes, compute the risk of a stockout. (Round "z" value to 2 decimal places and final answer to 4 decimal places.) Risk c. If a fixed interval of seven weeks is used for ordering instead of an ROP, how many boxes should be ordered if there are currently 8 boxes on hand, and an acceptable stockout risk for the order cycle is .0170? (Round "z" value to 2 decimal places and final answer to the nearest whole number.) Q0

Answer 1

Economic Order Quantity refers to the number of unit the company should add to the inventory and the order is made to minimize the total inventory cost. It maintain a balance between ordering costs and carrying costs. The total inventory cost include the Annual ordering cost, holding cost and total product cost.