Question

Inventory control subject to uncertain demand

1. A book and paper store distributes one specialized monthly magazine.  When looking at the sales the last years, they have concluded that the demand for each issue of the magazine will be normally distributed with an expected sale of 250 and a standard deviation of 100. The purchase price for the magazine is $20. and  the  sales  price  is $50.The  store  has  an  agreement  with a second -hand  store  that  buys  unsold  magazines  for $5 each.  How  many magazines should the store buy of each issue?

2. In some situations with uncertain demand, so called (Q, R) -models are used. Explain shortly in which situations these models should be used instead of the Newsboy Model, and how to calculate lot size and reorder point with these models.

3. The  book  and paper  store  also  distributes  a city  guidebook  that  is ordered from the publisher when needed. The purchase cost is $60. and the store must assume a lead - time of three months from the order is placed and the guidebooks  arrive.  The  store  reckon  for  an  annual  interest  rate  of  20  %  to compute holding  costs,  and  estimates  a  cost  of $40. for  a  lost  sale  if  the guidebook is requested when they are out of stock.  The expense of placing an order is set to $100.The demand of the guidebook can vary a great deal, but the average during a three - month period has been calculated to 125. The demand can be described by a normal distribution and the standard deviation is 15. Find the optimal value of the lot size, Q, and the reorder point, R, in this case.