Problem
The Jubail Bicycle Shop operates 7 days per week, closing 5 days each for Eid-ul-Fitr and Eid- Ul -Adah (this gives 355 working days in a year). The shop pays SAR 600 for a particular bicycle purchased from the manufacturer. The annual holding cost per bicycle is estimated to be 25% of the SAR value of inventory. The shop sells an average of 25 bikes per week. Frequently, the dealer does not have a bike in stock when a customer purchases it, and the bike is back ordered. The dealer estimates his shortage cost per unit back-ordered, on an annual basis, to be SAR 400 due to lost future sales (and profits) and the lead time is 2 weeks. The ordering cost for each order is SAR 300. Determine the following:
o Optimal order quantity
o Shortage level (Maximum number of back orders)
o Total minimum cost.
o Optimal ordering policy
o How long will there be stock out?
The response should include a reference list. One-inch margins, Using Times New Roman 12 pnt font, double-space and APA style of writing and citations.