Question 15The home appliance department of a large department store is using inventory models to controlthe replenishment of a particular model of Microwave ovens. The daily demand follows anormal distribution with a mean of 150 units and standard deviation of 16 units. The store pays$100 for each oven. Fixed costs of replenishment are $28. The accounting departmentrecommends a 20% annual holding cost rate. Assume that the average lead time is 5 days with astandard deviation of 1 day. Assume 365 days a year.Part A: What is the EOQ?Part B: What is the reorder point if the maximum chance of 5% of stock out (i.e. 95% servicelevel) is desired?Part C: What is the reorder point if a fill rate of 99% is required?Part D: Suppose management wants to simplify the process by setting the reorder point to“1000” units. Based on this policy, what is the implied chance of stock out? Question 15The home appliance department of a large department store is using inventory models to controlthe replenishment of a particular model of Microwave ovens. The daily demand follows anormal distribution with a mean of 150 units and standard deviation of 16 units. The store pays$100 for each oven. Fixed costs of replenishment are $28. The accounting departmentrecommends a 20% annual holding cost rate. Assume that the average lead time is 5 days with astandard deviation of 1 day. Assume 365 days a year.Part A: What is the EOQ?Part B: What is the reorder point if the maximum chance of 5% of stock out (i.e. 95% servicelevel) is desired?Part C: What is the reorder point if a fill rate of 99% is required?Part D: Suppose management wants to simplify the process by setting the reorder point to"1000" units. Based on this policy, what is the implied chance of stock out?

Step 1:Given that:Daily demand = 150Number of days in year = 365Ordering cost (S) = $28Item cost(C)…

Answered: Question 15 The home appliance…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question 15

The home appliance department of a large department store is using inventory models to control

the replenishment of a particular model of Microwave ovens. The daily demand follows a

normal distribution with a mean of 150 units and standard deviation of 16 units. The store pays

$100 for each oven. Fixed costs of replenishment are $28. The accounting department

recommends a 20% annual holding cost rate. Assume that the average lead time is 5 days with a

standard deviation of 1 day. Assume 365 days a year.

Part A: What is the EOQ?

Part B: What is the reorder point if the maximum chance of 5% of stock out (i.e. 95% service

level) is desired?

Part C: What is the reorder point if a fill rate of 99% is required?

Part D: Suppose management wants to simplify the process by setting the reorder point to

“1000” units. Based on this policy, what is the implied chance of stock out?

Question 15
The home appliance department of a large department store is using inventory models to control
the replenishment of a particular model of Microwave ovens. The daily demand follows a
normal distribution with a mean of 150 units and standard deviation of 16 units. The store pays
$100 for each oven. Fixed costs of replenishment are $28. The accounting department
recommends a 20% annual holding cost rate. Assume that the average lead time is 5 days with a
standard deviation of 1 day. Assume 365 days a year.
Part A: What is the EOQ?
Part B: What is the reorder point if the maximum chance of 5% of stock out (i.e. 95% service
level) is desired?
Part C: What is the reorder point if a fill rate of 99% is required?
Part D: Suppose management wants to simplify the process by setting the reorder point to
"1000" units. Based on this policy, what is the implied chance of stock out?

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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