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a large department store is using inventory models to control the replenishment of a particular model...

a large department store is using inventory models to control the replenishment of a particular model of Microwave ovens.  The daily demand follows a normal distribution with a mean of 150 units and standard deviation of 16 units.  The store pays $100 for each oven.  Fixed costs of replenishment are $28.  The accounting department recommends a 20% annual holding cost rate.  Assume that the average lead time is 5 days with a standard deviation of 1 day. Assume 365 days a year.

What is the EOQ?

What is the reorder point if the maximum chance of 5% of stock out (i.e. 95% service level) is desired?

What is the reorder point if a fill rate of 99% is required?

Suppose management wants to simplify the process by setting the reorder point to “1000” units. Based on this policy, what is the implied chance of stock out?

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Answer #1

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