Problem 11-30 (Static)

It is your responsibility, as the new head of the automotive section of Nichols Department Store, to ensure that reorder quantities for the various items have been correctly established. You decide to test one item and choose Michelin tires, XW size 185 14 BSW. A perpetual inventory system has been used, so you examine this as well as other records and come up with the following data:

Cost per tire	$	35	each
Holding cost		20	percent of tire cost per year
Demand		1,000	per year
Ordering cost	$	20	per order
Standard deviation of daily demand		3	tires
Delivery lead time		4	days

Because customers generally do not wait for tires but go elsewhere, you decide on a service probability of 98 percent. Assume the demand occurs 365 days per year. a. Determine the order quantity. (Round your answer to the nearest whole number.)

Order quantity

tires

b. Determine the reorder point. (Use Excel's NORM.S.INV() function to find the z value. Round z value to 2 decimal places and final answer to the nearest whole number.)

Reorder point

tires