In: Statistics and Probability
The A&M Hobby Shop carries a line of radio-controlled model racing cars. Demand for the cars is assumed to be constant at a rate of 27 cars per month. The cars cost $69 each, and ordering costs are approximately $11 per order, regardless of the order size. The annual holding cost rate is 21%.
(a) | Determine the economic order quantity and total annual cost under the assumption that no backorders are permitted. |
If required, round your answers to two decimal places. | |
Q* = | |
Total Cost = $ | |
(b) | Using a $49 per-unit per-year backorder cost, determine the minimum cost inventory policy and total annual cost for the model racing cars. |
If required, round your answers to two decimal places. | |
S* = | |
Total Cost = $ | |
(c) | What is the maximum number of days a customer would have to wait for a backorder under the policy in part (b)? Assume that the Hobby Shop is open for business 300 days per year. |
If required, round your answer to two decimal places. | |
Length of backorder period = days | |
(d) | Would you recommend a no-backorder or a backorder inventory policy for this product? Explain. |
If required, round your answers to two decimal places. | |
Recommendation would be [backorder OR no-backorder] inventory policy, since the maximum wait is only days and the cost savings is $ . | |
(e) | If the lead time is six days, what is the reorder point for both the no-backorder and backorder inventory policies? |
If required, round your answers to two decimal places. | |
Reorder point for no-backorder inventory policy is . | |
Reorder point for backorder inventory policy is . |