Question

You are managing the inventory for the distribution center of a chain of grocery stores in Muscat. You want to
establish the inventory policy for Baxters Soups, a well-known brand of canned soups and chowders. The demand
for Baxters Soups is exceptionally stable with no discernible trend or seasonality. In fact, the demand on a monthly
basis is essentially uniform and constant. You want to set the inventory for one of their flavors, Mushroom soup.
Company estimated inventory carrying cost at 60% per annum. Rate of consumption per day 35 units. The ordering
cost per order is RO 250 . The cost incurred for purchasing is RO 700. The rate of consumption per day is 30 to 40
and lead time to supply is 2 to 6 days. During emergency purchase the lead time is 3 days.
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Calculate the following: (20 Marks)
a. Reorder level
b. Maximum level of stock
c. Minimum level of stock
d. Average level of stock
e. Danger Level
f. Economic Order Quantity
g. Economic Order Frequency
h. Number of orders per year
i. Total annual ordering and carrying cost at EOQ

Answer 1

Answer:

Company estimated inventory carrying cost at 60% per annum. Rate of consumption per day 35 units. The ordering

cost per order is RO 250 . The cost incurred for purchasing is RO 700. The rate of consumption per day is 30 to 40Company estimated inventory carrying cost at 60% per annum. Rate of consumption per day 35 units. The ordering

cost per order is RO 250 . The cost incurred for purchasing is RO 700. The rate of consumption per day is 30 to 40

and lead time to supply is 2 to 6 days. During emergency purchase the lead time is 3 days.

and lead time to supply is 2 to 6 days. During emergency purchase the lead time is 3 days.