Introduction to Management Science 12th Edition by Bernard Taylor

Exercise 2

The Road King Tire store sells a brand of tires called the Roadrunner. The annual demand from the store's customers for Roadrunner tires is 3,700. The cost to order tires from the tire manufacturer is $420 per order. The annual carrying cost is $1.75 per tire. The store allows shortages, and the annual shortage cost per tire is $4. Determine the optimal order size, maximum shortage level, and minimum total annual inventory cost.