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Sample Inventory problems for Midterm 2

# Sample Inventory problems for Midterm 2 - 2 An automotive...

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Sample Inventory problems for Midterm 2 1. You have decided to open a mail order shoe business once you graduate from Georgia Tech. One of the problems you face is that you have to print the catalog and order all your items before the selling season, and there is no opportunity to re-order or change the catalog once the selling season begins. You can purchase shoes for \$12 per unit from your supplier and sell them for \$20 per unit. If you are left with any shoes at the end of the season, you can sell them through a discount outlet for \$10 per unit. You estimate that total demand during the season will be normally distributed with mean 1000 and standard deviation 100. a. How many shoes should you order to maximize your expected profit? b. How would the order size change if the selling price increased? c. How would the order size change if the demand variability decreased?
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Unformatted text preview: 2. An automotive repair shop stocks many sizes of tires. One particular size and model is purchased for \$30. The manager estimates the fixed cost to order at \$75, including the delivery charge and the paperwork. Using the cost of rent, interest, and utilities, the manager estimates the cost of carrying inventory at approximately 10% per year based on average inventory value. The shop sells approximately 3,000 of these tires per year. Orders are received 2 weeks after placement. a. Determine the optimal number of tires the shop should purchase each time an order is placed, and the time between orders. b. What is the reorder point? Average inventory carried? c. If the weekly demand standard deviation were 5, what would the reorder point be to achieve a 98% service level? Average inventory carried?...
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