## Question

# A manager must set up a fixed-order quantity inventory policy for item P34, based on the following data. The firm operates 50 weeks a year

A manager must set up a fixed-order quantity inventory policy for item P34, based on the following data. The firm operates 50 weeks a year and weekly usage rate is normally distributed.

Average weekly demand - 60 units,

Standard deviation of weekly demand - 4 units per week

Unit cost - $15

Annual holding cost - 20% of value

Ordering cost - $70 Lead time - 2 weeks

Acceptable stockout risk - 2.5%

a. What is the optimal order quantity for P34? b. When (i.e., level of inventory on-hand) should the manager reorder P34? c. How many orders does the company make in a year under your proposed inventory management policy? d. What is the total annual cost under your proposed inventory management policy? e. The company has decided to round the order quantity to the nearest multiple of 100 units for convenience. What is the total annual cost in this case?

Question 2.

A hotel near the university always fills up on the evening before football games. History has shown that when the hotel is fully booked, the number of last-minute cancellations has a mean of 5 and standard deviation of 3. The average room rate is $80. Note that the hotel's policy is that customers only pay when they arrive and can check in to an available room. When the hotel is overbooked, the hotel will find a room in a nearby hotel and to pay for the room for the customer. This usually costs the hotel approximately $200 since rooms booked on such late notice are expensive. How many rooms should the hotel overbook to optimize its expected profit?

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Question 1 FixedOrder Quantity Inventory Policy for Item P34 Data Provided Weekly usage rate 60 units Standard deviation of weekly demand 4 units Unit cost 15 Annual holding cost 20 of unit cost Order...### Get Instant Access to Expert-Tailored Solutions

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