1. [10 points] Explain a situation in which you experienced a stockout. What did you decide to do in that situation? How can stockout costs be calculated?

2. [10 points] A product has a demand of 4000 units per year. Ordering cost is $20, and holding cost is $4 per unit per year. Assume that the lead time for the EOQ model is appropriate. What is the cost-minimizing order quantity? What is the total annual inventory (holding and ordering) costs? Show all calculations to earn credit.

3. A department store sells 10,000 units of handbags per year. The store orders handbags from a manufacturer. Each time an order is placed, an ordering cost of $40 is incurred. The store pays $30 for each handbag. The holding cost of $1 of inventory is 25 cents per year. (i.e. inventory holding rate is 25%). What is the economic order quantity? Show all calculations to earn credit.