Essay
The new office supply discounter, Paper Clips, Etc. (PCE), sells a certain type of ergonomically correct office chair which costs $300. The annual holding cost rate is 40%, annual demand is 900, and the order cost is $20 per order. The lead time is 4 days. Because demand is variable (standard deviation of daily demand is 2.4 chairs), PCE has decided to establish a customer service level of 90%. The store is open 300 days per year.
a. What is the optimal order quantity?
b. What is the safety stock?
c. What is the reorder point?
Correct Answer:
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(a) The optimal order quantity is Q* = 
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