Service Management 7th Edition by James Fitzsimmons, Mona Fitzsimmons

Exercise 28

A popular item stocked by the Fair Deal Department Store has an annual demand of 600 units. The cost to purchase these units from the supplier is $20 per unit and $12 to prepare the purchase order. The annual inventory holding cost is 20 percent of the purchase cost. The manager tries to maintain the probability of stockout at 5 percent or less. Lead time demand is uniform, between 30 and 70 (i.e., the probability of lead time is 1/41 =.0244 for demand = 30, 31,... , 70).
a. Calculate the EOQ.
b. Calculate the reorder point.
c. Calculate the safety stock.
d. If we purchase 80 units or more, the unit purchase cost is reduced to $19. Calculate the EOQ for this quantity discount case.