Two month lead time from initiation to receipt of order

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Annual demand for number 2 pencil at the campus store is normally distributed with mean 1000 and standard deviation 250. The store purchases the pencils for 6 cents each and sells them for 20 cents each. There is a two month lead time from the initiation to the receipt of an order. The store account estimates that the cost in employee time for performing the necessary paperwork to initiate and receive an order is $20, and recommends a 22 percent annual interest rate for determining holding cost. The cost of a stock out is the cost of lost profit plus an additional 20 cents per pencil which represents the cost of loss of goodwill.

Reference no: EM131035005

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