Question: A particular product is purchased for $ 3 . 7 each. Cost of ordering is $ 1 5 5 per order. Holding cost is given

A particular product is purchased for $3.7 each. Cost of ordering is $155 per order. Holding cost is given as $1.4 per unit per year. Monthly demand for the product follows a normal distribution with mean 395 and standard deviation 75. Order lead time is given as 4 months. Assume that the cost of back ordering is given as $14.
a) Determine the optimal values of order quantity and reorder point (Q,R).
b) Determine the average annual total cost of holding, setup and stockout associated with this product.
c) Suppose that stockout cost is replaced with a Type I service objective of 95%. Find optimal values of (Q,R) in this case.
d) Suppose that stockout cost is replaced with a Type II service objective of 90%. Find optimal values of (Q,R) in this case.

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