A computer-supply mail-order house has a memory chip in inventory that it sells to customers around the country. A Japanese manufacturer supplies the item using airfreight. It has the following characteristics:

a. Design a reorder point method of control for this item.
b. What are the annual ordering and annual carrying costs if your design is used?
c. Suppose that the lead time stretches to three weeks, so that the ROP > Q*. What adjustments would you suggest making in the control policy?

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Average annual demand 3,200 units Replenishment lead time1.5 weeks Carrying cost Purchase price, delivered $55 per unit Procurement ordering cost-$35 per order -15% per year