Each month, customers are equally likely to demand 1 or 2 computers from a Pearco dealer....

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Each month, customers are equally likely to demand 1 or 2 computers from a Pearco dealer. All orders must be met from current stock. Two ordering policies are under consideration: Policy 1 If ending inventory is 2 units or less, order enough to bring next month's beginning inventory to 4 units. Policy 2 If ending inventory is 1 unit or less, order enough to bring next month's beginning inventory up to 3 units. The following costs are incurred by Pearco: It costs $4,000 to order a computer. It costs $100 to hold a computer in inventory for a month. It costs $500 to place an order for computers. This is in addition to the per-customer cost of $4,000. Which ordering policy has a lower expected monthly cost? Each month, customers are equally likely to demand 1 or 2 computers from a Pearco dealer. All orders must be met from current stock. Two ordering policies are under consideration: Policy 1 If ending inventory is 2 units or less, order enough to bring next month's beginning inventory to 4 units. Policy 2 If ending inventory is 1 unit or less, order enough to bring next month's beginning inventory up to 3 units. The following costs are incurred by Pearco: It costs $4,000 to order a computer. It costs $100 to hold a computer in inventory for a month. It costs $500 to place an order for computers. This is in addition to the per-customer cost of $4,000. Which ordering policy has a lower expected monthly cost?

Answer rating: 100% (QA)

Cost per unit Cp 4000 Order placing cost Co 500 Carrying cost per unit per year Cc 1200 policy 1 T... View the full answer