Skill Mgt

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MGT 203

Skill Builder Exercise #4 Student Name ______________.

Problem 1: (50 points)

An ophthalmologist’s office operates 52 weeks per year. It purchases disposable contact lenses for $11.70 per pair. The following information is available about these lenses.

Demand = 90 pairs/week
Order cost = $54/order
Annual holding cost = 27% of purchasing cost
Desired cycle-service level = 80%
Lead time = 3 weeks
Standard deviation of weekly demand = 15 pairs
Current on-hand inventory is 320 pairs, with no open orders or backorders.

Currently, the company uses a continuous review system,

a. What is the EOQ?

b. What should be the safety stock? What should the reorder point be?

c. An inventory withdrawal of 10 pairs was just made. Is it time to reorder?

Problem 2: (50 points)

The local supermarket buys lettuce each day to ensure really fresh produce. Each morning any lettuce that is left from the previous day is sold to a dealer that resells it to farmers who use it to feed their animals. This week the supermarket can buy fresh lettuce for $4 a box. Each box contains 10 heads of lettuce. The lettuce is sold for $1 a head and the dealer that sells old lettuce is willing to pay $0.20 per head. Past history says that tomorrow’s demand for lettuce averages 2500 heads with a standard deviation of 750 heads.

a. How many boxes should the supermarket purchase tomorrow? (A fractional answer is okay).

b. What is the likelihood the supermarket will run out of lettuce tomorrow?
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