Carmin's Boutique sells a large number of black dress shirts. The shirts, which bear the store label, are shipped from a manufacturer in Paris. Carmin's purchasing department manager says, "I want to be sure that I never run out of dress shirts. I always try to keep at least a two months' supply in stock. When my inventory drops below that level, I order another two-month supply. I've been using that method for 20 years, and it works."

The shirts cost $6 each and sells for $15. The cost of processing an order an receiving new goods amounts to $80, and it takes three weeks to receive a shipment. Monthly demand is approximately normally distributed with mean 120 and standard deviation 32. Assume a 20 percent annual interest rate for computing the holding costs. The loss-of-goodwill cost is $4.4 per shirt.

1. What values of Q and R is Carmin's Boutique currently using (based on the narrative above) to control inventory of black dress shirts?

2.Determine the optimal values of Q and R that the should be using. (Assume 4 weeks in a month for your calculations.)

3. Based on the previous analysis, what would you recommend Carmin's Boutique to do in terms of number of units to order and reorder level?