A distributor of large appliances needs to determine the order quantities and reorder points for the various products it carries. The following data refer to a specific refrigerator in its product line:

Cost to place an order $100
Holding cost 20 percent of product cost per year
Cost of refrigerator $500 each
Annual demand 500 units
Standard deviation during lead time 10
Lead time 7 days

Consider an even daily demand and a 365-day year.

a. What is the economic order quantity?
b. If the distributor wants a 97 percent service probability, what reorder point, R, should be used?

a. 32 refrigerators

b. 29 refrigerators

Explanation:

a. The computation of the economic order quantity is shown below:

= 32 refrigerators

The carrying cost is come from

= $500 × 20%

= $100

b. And, the reorder point is

= Annual demand ÷ total number of days in a year × lead time + service level × Standard deviation during lead time

= 500 ÷ 365 days × 7 days + 1.90 × 10

= 29 refrigerators

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.

c is the correct answer.