The Stereo Warehouse in Georgetown sells stereo sets, which it orders from Fuji Electronics in Japan. Because of shipping and handling costs, each order must be for five stereos. Because of the time it takes to receive an order, the warehouse outlet places an order every time the present stock drops to five stereos. It costs $100 to place an order. It costs the warehouse $400 in lost sales when a customer asks for a stereo and the warehouse is out of stock. It costs $40 to keep each stereo stored in the warehouse. If a customer cannot purchase a stereo when it is requested, the customer will not wait until one comes in but will go to a competitor. The following probability distribution for demand for stereos has been determined:
Demand per Week Probability
0 ..................0.04
1 ..................0.08
2 ..................0.28
3 ..................0.40
4 ..................0.16
5 ..................0.02
6 ..................0.02
1.00
The time required to receive an order once it is placed has the following probability distribution:
Time to Receive an Order (weeks) Probability
1 ..................0.60
2 ..................0.30
3 ..................0.10
1.00
The warehouse presently has five stereos in stock. Orders are always received at the beginning of the week. Simulate the Stereo Warehouse’s ordering and sales policy for 20 weeks, using the first column of random numbers in Table S13.3. Compute the average weekly cost.