# Question

The Suregrip Tire Company carries a certain type of tire with the following characteristics:

Average annual sales = 600 tires

Ordering cost = $40 per order

Carrying cost = 25 percent per year

Item cost = $50 per tire

Lead time = 4 days

Standard deviation of daily demand = 1 tire

a. Calculate the EOQ.

b. For a Q system of inventory control, calculate the safety stock required for service levels of 85, 90, 95, 97, and 99 percent.

c. Construct a plot of total inventory investment versus service level.

d. What service level would you establish on the basis of the graph in part c? Discuss.

Average annual sales = 600 tires

Ordering cost = $40 per order

Carrying cost = 25 percent per year

Item cost = $50 per tire

Lead time = 4 days

Standard deviation of daily demand = 1 tire

a. Calculate the EOQ.

b. For a Q system of inventory control, calculate the safety stock required for service levels of 85, 90, 95, 97, and 99 percent.

c. Construct a plot of total inventory investment versus service level.

d. What service level would you establish on the basis of the graph in part c? Discuss.

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