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A large retailer in Canada is currently re-planning its inventory level of Blu-ray players for 2017. The retailer initially considered a traditional EOQ mode for
A large retailer in Canada is currently re-planning its inventory level of Blu-ray players for 2017. The retailer initially considered a traditional EOQ mode for optimizing its reordering points, but later realized that the demand during the lead time was not Normally distributed. In particular, the company found that this value was uniformly distributed between 40 and 80 (that is, all levels of demand in this interval have the same probability of occurring). Suppose that the holding cost of a Blue-ray player is $5 per year, and the stockout cost (lost sale) is $30 per unit. The company currently places 5 orders per year with a reordering point of 50. (a) What is the probability of observing a demand of d during the lead time? (2 points) (b) If we observe a demand of d during the lead time and we experience a stockout, how much will the company pay due to stockout costs? ( 2 points) (c) What is the annual expected stockout cost that the company pays when waiting for each lead time? Use your solution for items a and b to answer this question. (3 points) (d) Would it be worth it to keep a safety stock of 20 units? ( 2 points)
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