Question: This is a question about Inventory Management. The annual demand, ordering cost, and the annual inventory carrying cost rate for a certain electronic component of

This is a question about Inventory Management.

The annual demand, ordering cost, and the annual inventory carrying cost rate for a certain electronic component of industrial refrigerators to be ordered from Japan are respectively D = 85,000 units, S = $2,000/order and H = $50/unit/year. The company operates 200 days a year. Lead time to receive orders is 10 days to 14 days.

1. What should the order quantity be in order to minimize the total annual cost of inventory management? What are the corresponding total ordering costs and total holding costs?

2. What should the reorder point and safety stock be, in order to account for lead time?

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