( EOQ / (Q,r) policy: Suppose you are playing the Littlefield Game and you forecast that the daily demand rate stabilizes after day 120 at a mean value of 11 units per day with a standard deviation of 3.5 units per day. Each customer demand unit consists of (is made from) 60 kits of material. The cost per kit is 10$ and so the unit cost is 600 $/unit. The effective annual interest rate for working capital (carrying WIP inventory) is 10%; and the company operates for 350 working days each year. The fixed order cost is 1000 $/order. The lead time for delivery of kit replenishment orders placed with the supplier is 4 days. Item inventory replenishment is automatically controlled using a computer program that follows a (Q,r) policy. [Caveat note: The data above may or may not correspond to the data in your actual Littlefield game play.]
i. Calculate a good value for the order quantity Q and a good Power-of-Two reorder interval in days corresponding to your Q (clearly show the approach you used to pick your Power-of-two reorder interval). By what percentage does the power-of-two reorder interval increase relevant annual fixed order and inventory cycle-stock holding costs, relative to the optimal [economic] reorder interval?