QUESTIONS
1. Rocky Mountain Tire Centre sells 20,000 tires of a particular type per year. The ordering cost for each order is $40, and the holding cost is 20% of the purchase price of the tires per year. The purchase price is $20. per tire if fewer than 500 tires are ordered, $18. Per tire if more than 500 but fewer than 1,000 tires are ordered and $17. per tire if 1,000 or more tires are ordered. How many tires should Rocky Mountain order each time it places an order?
Quantity Unit Price
1-499 $20.
500-999 $18.
1000 & over $17
2. Based on available information, lead time demand for CD-ROM drives averages 50 units (normally distributed), with a standard deviation of 5 drives. Management wants a 97% service level.
- What value of Z should be applied?
- How many drives should be carried as safety stock?
- What is the appropriate reorder point?