3. The ICU Optical Clinic has recently added a new line of eyeglasses that incorporates a highly fashionable frame and lenses that darken in sunlight and lighten indoors. ICU purchases frames for the glasses from an outside vendor. The lenses are manufactured on site. The clinic has recently noted the following demand distribution for its new glasses:

Purchase price to the ICU Optical Clinic is $30 per frame. The clinic has an ordering cost of $25. Cost of carrying inventory is 25 percent of the item value per unit per year. Order lead time is constant at one month. The work year consists of 12 months.

a. Compute the economic order quantity for the frames ICU purchases.

b. Compute the reorder point and safety stock level for a 99 percent customer service level. Assume order quantity and reorder point can be computed independently.

c. What is the total annual cost of carrying the safety stock computed in part b?

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Demand/month Probability 12 0.10 13 0.15 14 0.15 15 0.20 16 0.20 17 0.10 18 0.05 19 0.05