Sam's Cat Hotel operates 5252 weeks per? year, 77 days per?week, and uses a continuous review inventory system. It purchaseskitty litter for ?$10.7510.75 per bag. The following information isavailable about these bags. Refer to the standard normal tableLOADING... for? z-values.
Demand = 100 bags/weeks
Order cost = $56/order
Annual Holding Cost = 30 percent of cost
Desired cycle-service level =99 percent Lead time = 2 weeks (14working days)
Standard deviation of weekly demand = 10 bags
Current on-hand inventory is 315 bags with no open orders orbackorders
d. The store currently uses a lot size of 495 bags (i.e,Q =495).
What is the annual holding cost of this policy? The annualholding cost is ??? (Enter your response and round to two decimalplaces)
What is the annual ordering cost? The annual ordering cost is??? (Enter your respone and round to two decimal places)
Without calculating the EOQ, how can you conclude fromthese two calucations that the current lot size is too large?Select the correct answer from the multiple choicebelow.
A. When Q= 495, the annual holding cost is larger than theordering cost, therefore Q is too large.
B. There is not enough information to determine this.
C. When Q=495, the annual holding cost is less then the orderingcost, therefore Q is too small.
D. Both quantiies are appropriate.
Please answer the following questions for section e.
e. What would be the annual cost saved by shifting fromthe 495 bag lot size to the EOQ?
The annual holding cost with the EOQ is ??? (Enter your responserounded to two decimal places)
The annual ordering cost with the EOQ is ??? (Enter yourresponse rounded to two decimal places)
Therefore, Sam's Cat Hotel saves ??? by shifting from the 495bag lot size to the EOQ? (Enter your response rounded to thenearest two decimal places)
