Introduction to Management Science 12th Edition by Bernard Taylor

Exercise 6

The manager of the local National Video Store sells videocassette recorders at discount prices. If the store does not have a video recorder in stock when a customer wants to buy one, it will lose the sale because the customer will purchase a recorder from one of the many local competitors. The problem is that the cost of renting warehouse space to keep enough recorders in inventory to meet all demand is excessively high. The manager has determined that if 90% of customer demand for recorders can be met, then the combined cost of lost sales and inventory will be minimized. The manager has estimated that monthly demand for recorders is normally distributed, with a mean of 180 recorders and a standard deviation of 60. Determine the number of recorders the manager should order each month to meet 90% of customer demand.