Economic Order Quantity and Safety Stock

Question 1

How do you calculate the Annual Total Cost of Inventory?

Answer 1

Annual Purchasing Cost + Annual Holding Cost + Annual Ordering Cost

Question 2

How do you calculate Variable Inventory Holding Cost?

Answer 2

-Cost of capital * Unit value of item
=H=hc

Question 3

How do you calculate annual holding cost?

Answer 3

HQ/2

Question 4

How do you calculate annual ordering cost?

Answer 4

KR/Q

Question 5

What is the equation for EOQ?

Answer 5

(2KR/H)^1/2

Question 6

What is the annual inventory related holding cost under EOQ?

Answer 6

(2KRH)^1/2

Question 7

How do you calculate the re-order point?

Answer 7

-Expected demand during lead time + safety stock
-ROP=RL+SS

Question 8

How do you calculate safety stock?

Answer 8

-SS= z value safety stock *(standard deviation of demand square root lead time)
-SS= NORM.S.INV(service level) * (sigmaL^1/2)

Question 9

How do you calculate ROP with a given service level?

Answer 9

ROP=NORM.INV (service level, RL, sigma*L^1/2)

Question 10

What is the equation for inventory related costs with a safety stock?

Answer 10

-Annual inventory related cost = Annual Cycle Inventory Holding Cost + Annual Ordering Cost+ Annual Safety Stock Holding Cost
-HK/2+KR/Q+HSS