Problem #3 Office Max

A product with an annual demand of 1000 units has Co = $25.50 and Ch = $8. The demand exhibits some variability such that the lead-time demand follows a normal probability distribution with µ = 25 and std deviiation= 5.

a. Determine the recommended order quantity.

b. Determine the reorder point and safety stock if the firm desires, at most, a 2% probability of stock-out on any given order cycle.

c. If a manager sets the reorder point at 30, determine the probability of a stock-out on any given order cycle. Determine the number of times the manager should expect a stock-out during the year if this reorder point were used.

A product with an annual demand of 1000 units has Co = $25.50 and Ch = $8. The demand exhibits some variability such that the lead-time demand follows a normal probability distribution with µ = 25 and std deviiation= 5.

a. Determine the recommended order quantity.

b. Determine the reorder point and safety stock if the firm desires, at most, a 2% probability of stock-out on any given order cycle.

c. If a manager sets the reorder point at 30, determine the probability of a stock-out on any given order cycle. Determine the number of times the manager should expect a stock-out during the year if this reorder point were used.

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