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Good Morning Sir,
Sir I hope you’re doing great!
Sir I had a doubt in one of the examples by acca study hub, I have mentioned the number in the heading, as if I type it here it can be very confusing to understand,
Sir my doubt is why have they choosen Demand of 70, 80, 80, and 80
And why is ROL 60, 70, 80I am attaching the question
Activity 4 Re-order Level
The following information relates to inventory levels of component XL5:
Holding cost = $8
Stock-out cost = $3
Lead time = 1 week
EOQ = 150
Cat
The company operates for 50 weeks per year and weekly demand is given by:
14
p(x)
Demand Probability
40 0.1
50 0.2
EOQ
= 150
The company operates for 50 weeks per year and weekly demand is given by:
X demand
p(x) probability
Demand Probability40 0.1
50 0.2
60 0.4
70 0.2
80 0.1
Average weekly demand = (40 x 0.1) + (50 *0.2)+ (60 * 0.4) + (70 * 0.2) + (80 * 0.1) = 60 unitsAverage annual demand = 60 * 50 = 3 units
Since the EOQ = 150, there will be 3000/150 = 20 orders
Demand is UNCERTAIN……..
Average weekly demand = (40 × 0.1) + (50 × 0.2) + (60 × 0.4) + (70 × 0.2) + (80 × 0.1) = 60 units
Because ave demand is 60……..this means that the ROL must be 60, 70 or 80
So if its ROL of 60 and demand is 70 or 80 there will be a shortness of 10 or 20
So if its ROL of 70 and demand is 80 there will be a shortness of 10
So if its 80 there will be no shortness at allThen you ascertain which has the lowest cost
Remember
The optimal re-order level is that level at which the total of holding and stock-out costs are a minimum.
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