Problem:
Wiley's TV Town sells VCR's. Weekly demand has averaged 40 VCR's per week. Wiley makes a gross profit of $50 per VCR sold (not including inventory costs). Holding costs are $260 per VCR per year and reorder costs are $42 per order. Lead time is 1 week and the store operates 52 weeks in a year.
Part A:
Determine:
1. the optimal number of VCR's Wiley should order (integer value)
2. the cycle time (in weeks);
3. his yearly net profit.
Part B:
Wiley is considering allowing backorders. Wiley intends to offer customers a discount of $20 per week for each week the customer must wait for a VCR. Wiley estimates that this policy will result in a drop in demand to 36 VCR's per week. Order and holding costs will remain the same. Should Wiley adopt this policy? Why or why not?