2 An optometrist orders eyeglass frames at a cost of $40 per frame and sells each frame for $70. Annual holding cost is 20% of the optometrist’s cost of purchasing a frame. Each time frames are ordered, a cost of $200 is incurred. Because of lost goodwill, a cost of $50 is incurred each time a customer wants a frame that is not in stock. Frames are delivered one week after an order is placed. Annual demand for frames is N(1,040, 15.73).

a Assuming all shortages are backlogged, determine the order quantity and reorder point.

b Assuming all shortages result in lost sales, determine the order quantity and reorder point.

c To meet 95% of all orders from stock, what should be the reorder point?

d To have shortages occur during an average of two lead times per year, what should be the reorder point?