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1. Pam runs a mail-order business for gym equipment. Annual demand for the TricoFlexers is 16,000. The annual holding cost per unit is $2.50, and the cost to place an order is $50. What is the economic order quantity?
2. Using the same holding and ordering costs as in Problem 1, suppose demand for TricoFlexers doubles to 32,000. Does the EOQ also double? Explain what happens.
3. The manufacturer of TricoFlexers has agreed to offer Pam a price discount of $5 per unit ($45 rather than $50) if she buys 1,500. Assuming annual demand is still 16,000, how many units should Pam order at a time?
4. Jimmy's Delicatessen sells large tins of Tom Tucker's Toffee. The deli uses a periodic review system, checking inventory levels every 10 days, at which time an order is placed for more tins. Order lead time is 3 days. Average daily demand is 7 tins, so average demand during the reorder period and order lead time (13 days) is 91 tins. The standard deviation of demand during this same 13- day period is 17 tins. Calculate the restocking level. Assume the desired service level is 90% percent.
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