An electronics retailer carries a particular cellular telephone with the following characteristics:
Average monthly sales = 120 units
Ordering cost = $25 per order
Carrying cost = 35 percent per year
Item cost = $300 per unit
Lead time = 4 days
Standard deviation of daily demand = .2 unit
Working days per year = 250
a. Determine the EOQ.
b. Calculate the reorder point for a 92 percent service level, assuming normally distributed demand.
c. Design a Q system for this item.
d. What happens to the reorder point when the lead time changes? What happens to the reorder point when the standard deviation of demand changes?