[Page 760 ( continued )] The following example will demonstrate EOQ analysis for the classical model and the model with shortages and back ordering.
Problem Statement
Electronic Village stocks and sells a particular brand of personal computer. It costs the store $450 each time it places an order with the manufacturer for the personal computers. The annual cost of carrying the PCs in inventory is $170. The store manager estimates the annual demand for the PCs will be 1,200 units.
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Determine the optimal order quantity and the total minimum inventory cost.
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Assume that shortages are allowed and that the shortage cost is $600 per unit per year. Compute the optimal order quantity and the total minimum inventory cost.
Solution
| Step 1. | (part a): Determine the Optimal Order Quantity |
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| Step 2. | (part b): Compute the EOQ with Shortages |
Problem Statement
A computer products store stocks color graphics monitors, and the daily demand is normally distributed, with a mean of 1.6 monitors and a standard deviation of 0.4 monitor. The lead time to receive an order from the manufacturer is 15 days. Determine the reorder point that will achieve a 98% service level.
Solution
| Step 1. | Identify Parameters = 1.6 monitors per day L = 15 days s d = 0.4 monitors per day Z = 2.05 (for a 98% service level) |
| Step 2. | Solve for R |