Fly-at-Night Express uses 10,000 #3 envelopes per month. It costs $50 to order and receive a shipment of these envelopes. The envelopes cost $.40 each, and Fly-at-Night uses an inventory carrying cost rate of 30% per year.
a. Determine the economic order quantity, the average inventory level, and the time between orders if Fly-at-Night operates 307 days per year.
b. What should the reorder point be if the envelope supplier takes ten working days to deliver?
c. If the usage rate given is an average and the standard deviation of daily usage of envelopes is 75, what should the reorder point and safety stock be if Fly-at-Night wants to take no more than a 5% chance of running out of stock of envelopes during any given order cycle (i.e., z = 1.645)?