Ceiling Drug is concerned about the inventory control of an important item. Currently, they are using an (s, Q) system where Q is the EOQ and the safety factor k is selected based on a B2v shortage-costing method. Relevant parameter values are estimated to be D = 2,500 units/year B2 = 0.6 v = $10/unit xˆL = 500 units A = $5 σL = 100 units r = 0.25$/$/year

a. What are the Q and s values currently in use?

b. Determine the simultaneous best values of Q and s.

c. What is the percent penalty (in the total of replenishment, carrying, and shortage costs)

of using the simpler sequential approach? LOP52