Demand for product averages 25 units per day (assume that the year has 280 consumable days). The product cost $12.50 per unit and sell for $23.00. There is 25% annual holding cost rate, based on the unit cost, and the estimated the cost to place an order is $35. The company has a policy of keeping a safety stock of 25 units at all time. The lead time for this product is seven days. Determine the following:
The optimal inventory policy (order quantity and reorder point) for the disposable razors.
The number of days between orders (cycle time).
The total annual inventory cost (holding, ordering, and procurement) and the projected annual net profit of this policy.
What assumptions did you make regarding demand in solving this problem?
Would your answers to part a change if the estimated unit cost instead of $12.50 is 60% of a unit income?