The A&M Hobby Shop carries a line of radio-controlled model racing cars. Demand for the cars is

Question:

The A&M Hobby Shop carries a line of radio-controlled model racing cars. Demand for the cars is assumed to be constant at a rate of 40 cars per month. The cars cost $60 each, and ordering costs are approximately $15 per order, regardless of the order size. The annual holding cost rate is 20%.
a. Determine the and total annual cost under the assumption that no backorders are permitted.
b. Using a $45 per-unit per-year backorder cost, determine the minimum cost inventory policy and total annual cost for the model racing cars.
c. What is the maximum number of days a customer would have to wait for a backorder under the policy in part (b)? Assume that the Hobby Shop is open for business 300 days per year.
d. Would you recommend a no-backorder or a backorder inventory policy for this product? Explain.
e. If the lead time is six days, what is the reorder point for both the no-backorder and backorder inventory policies?

Economic Order Quantity
Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has...