7.12 Air Alberta has been using an (s, Q) control system for a fast-moving spare part for one of its types of aircraft. The properties of this part are D = 1,920 units/year A = $15 v = $20.00/unit r = 0.2$/$/year xˆL = 150 units σL = 60 units Whenever a shortage is impending, an expediting action is taken, avoiding the shortage. The cost of such an expedite is roughly $200, independent of the magnitude of the impending shortage. The company uses an EOQ as the order quantity.

a. Determine the EOQ and s.

b. What are the expected total relevant costs (replenishing, carrying, and expediting) per year?

c. A management science graduate, working in Air Alberta’s operations research department, says that increasing Q to 5% above the EOQ will reduce the expected total relevant costs per year? Can he be right? Discuss. LOP52