Question: A business sells an item at a constant rate of r units per month. It reorders in batches of q units, at a cost of a+bq dollars per order. Storage costs are k dollars per item per month, and, on average, q/2 items are in storage, waiting to be sold. [Assume r, a, b, k are positive constants.]
(a) How often does the business reorder?
(b) What is the average monthly cost of reordering?
(c) What is the total monthly cost, C of ordering and storage?
(d) Obtain Wilson's lot size formula, the optimal batch size which minimizes cost.