The annual demand for a popular item stocked by the Fair Deal Department Store is 600 units. The purchase cost per item is $20.00; and the cost of processing a purchase order is $12.00. The annual holding cost per unit of inventory is 20% of the purchase cost per unit. The Store Manager has set a stockout policy of less than or equal to 5%. The demand during leadtime is assumed to be uniform between the range spanning 30 to 70 units. That is, the probability of demand during leadtime for 30, 31, … ,70 units is 1 / 41.
a) Calculate the EOQ.
b) Calculate the reorder point, R.
c) Calculate the safety stock.
d) If the Order Size is increase to 80 or more units, the unit purchase cost will be reduced to $19.00. Calculate the EOQ for this Quantity Discount.