re: inventory backorder problem

Project Description:

a manager of an inventory system believes that inventory models are important decision making aids. while often using an eoq policy, the manager has never considered a backorder model because of the assumption that backorders were “bad” and should be avoided. however, with upper managements’ continued pressure for cost reduction, you have been asked to analyze the economics of backordering policy for some products that can possibly be backorderd. for a specific product with an annual demand of 800 units, the ordering cost is $150 and the finance charge is 20% while each item costs $6.00, and if a unit is backordered, the cost for backorder is $20. what is the difference in total annual cost between the eoq model and the planned shortage or backorder model? when there is planned shortage, find q, backorder size, and maximum inventory. what would be the cycle time?
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