MGMT 331 EOQ practice SOLUTION

# MGMT 331 EOQ practice SOLUTION - Value unit = \$500 If we...

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MGMT 331 EOQ Here is an EOQ problem to try: Demand is 1,000 a year Order Costs are \$20 per order Carrying Costs are .2 Value per unit is \$500 1. What is the EOQ?? = square root of 400 or 20 2. If period demand is 200, and a standard deviation is 25, how much safety stock should we carry if we want 95% stock out protection? 25* 1.66 = 25 + 17 or 42 Hint: we want 1.66 standard deviations of protection for a stockout probability of 5% 3. Alternatively suppose that safety stock and stock out levels are as follows:
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Unformatted text preview: Value unit = \$500 If we stock out p( wait) = .5 , cost ?? zero P (lose sale) = .4, cost=?? .4 times 500 or 200 P (lose customer) = .1 (cost = \$5,000) . so total cost of a stock out = 700 Stock outs SS Level Total Cost 5 10 4500 3 20 4100 OPTIMAL is 20 units of SS 2 30 4400 1 40 4700 Calculate optimal safety stock and show the total cost for each level of SS...
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## This note was uploaded on 12/16/2011 for the course MGMT 331 taught by Professor Dr.raymondsmith during the Fall '11 term at Howard.

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