Regional Supermarket is open 360 days per year. Daily use of cash register tape averages 15 rolls. Usage appears normally distributed with a standard deviation of 2 rolls per day. The cost of ordering tape is $1, and carrying costs are 40 cents per roll a year. Lead time is 5 days.
a. What is the EOQ?
b. What ROP will provide a lead time service level of 96 percent?
c. What is the expected number of units short per cycle with 96 percent? Per year?
d. What is the annual service level?

Economic Order Quantity is the inventory management technique which minimizes the cost to the company. At EOQ point the holding and ordering cost are the minimum.

Reorder point is the inventory level which is used as indicator for reordering inventory.

Explanation:

Carrying cost is 0.4 per roll

Annual demand is 360 days * 15 rolls per day = 5400

Ordering cost is $1 per order.

EOQ = 164

Short per cycle = 0.016 * Standard Deviation * Lead time

Short per cycle = 0.09051 * 5400 / 164 = 29.8 per year

Annual service level = 1 - (0.9051 / 164) = 0.9945