Answered: The hospital orders bandages in lot…

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

Wood County Hospital consumes 500 boxes of bandages per week. The price of bandages is $70 per box. The cost of processing an order is $60, and the cost of holding one box for a year is 15% of the value of the material. Assume 52 weeks per year.

a) The hospital orders bandages in lot sizes of 900 boxes. What extra costs does the hospital incur, which it could save by applying the EOQ concept?

b) Demand is normally distributed with a standard deviation of weekly demand being 100 boxes. The lead-time is 1/2 week. What safety stock is necessary if the hospital uses continuous review inventory system, and a 97% service level? What should the reorder point be?

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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