Service Management 7th Edition by James Fitzsimmons, Mona Fitzsimmons

Exercise 4

Suppose the XYZ Company, which has an annual demand of 12,000 units per year, order cost of $25, and annual holding cost per unit of $0.50, decides to operate with a planned shortage inventory policy with the backorder cost estimated as $5 per unit per year.
a. Determine the EOQ.
b. Determine the maximum number of backorders.
c. Determine the maximum inventory level.
d. Determine the cycle time in workdays (assume 250 workdays per year).
e. Determine the total inventory cost per year.