Petromax Enterprises uses a continuous review inventorycontrol system for one of its SKUs. The following informationis available on the item. The firm operates 50 weeks in a year.Demand = 50,000 units>yearOrdering cost = $35>orderHolding cost = $2>unit>yearAverage lead time = 3 weeksStandard deviation of weekly demand = 125 unitsa. What is the economic order quantity for this item?b. If Petromax wants to provide a 90 percent cycle-servicelevel, what should be the safety stock and the reorder point?

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Author:WINSTON, Wayne L.
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Petromax Enterprises uses a continuous review inventory
control system for one of its SKUs. The following information
is available on the item. The firm operates 50 weeks in a year.
Demand = 50,000 units>year
Ordering cost = $35>order
Holding cost = $2>unit>year
Average lead time = 3 weeks
Standard deviation of weekly demand = 125 units
a. What is the economic order quantity for this item?
b. If Petromax wants to provide a 90 percent cycle-service
level, what should be the safety stock and the reorder point?

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