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A firm sells a product with an annual demand of A= 500. The holding cost is Ch= $4 per unit per year and the ordering cost is Cp= $256 per order. Demand exhibits some variability and management has estimated that lead time demand follows a normal distribution with a mean of m= 320 and standard deviation Q= 80.
a. Find the reorder level if management wants a 98% fill rate.
b. If the holding cost per unit year is $5, find the annual holding cost for this item using the reorder point computed in part a.
c. If the shortage cost is $20 per unit, find the shortage cost per cycle for this item using the reorder point computed in part a
d. If the firm orders the EOQ, what is the reorder point if the firm desires on average no more than one cycle.
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