Question: A manager must set up inventory ordering systems for 2 new production items, P34 and P35. P34 can be ordered at any time, but P35 can be order only once every four weeks. The company operates 50 weeks a year and the weekly usage rates for both items are normally distributed. The manager has gathered the following information about the items:

Item P34 Item P35

Average weekly demand 60 units 70 units

Standard Deviation 4 units per week 5 units per week

Unit Cost $15 $20

Annual holding cost 30% 30%

Ordering cost $70 $30

Lead time 2 weeks 2 weeks

Acceptable stockout risk 2.5% 2.5%

1. Compute when should the manager reorder each item?

• For the P34 we have that the reorder point is
  \[R=\bar{d}L+z{{\sigma }_{d}}\sqrt{L}=8.57\times 14+1.96\times 1.51858\sqrt{14}=131.1\]
• For the P35 we have that the reorder point is

B. Compute the order quantity for P34

C. Compute the order quantity for P35 if 110units are on hand at the time the order is placed

Price: $2.99

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