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4) Daily demand for Aspirin at DoorRed Pharmacy is normally distributed with a mean of 40 bottles and a standard deviation of 5. The replenishment

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4) Daily demand for Aspirin at DoorRed Pharmacy is normally distributed with a mean of 40 bottles and a standard deviation of 5. The replenishment lead time is one day. The current inventory policy at DoorRed is to order 200 bottles when the quantity on hand drops to 45 units. Each bottle costs $4 and the pharmacy uses a holding cost rate of 25%. a. If all unfulfilled demand is assumed to be backlogged, what cost of understocking justifies the current policy? (3) b. If all unfulfilled demand is assumed to be lost, what cost of stocking out justifies the current policy? (3) c. DoorRed feels that all unfilled demand can be backlogged if customers are given a $1.50 discount on their next purchase, effectively making the cost of understocking $1.50. What inventory policy do you recommend for DoorRed? (4)

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