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DA store uses a (Q,R) inventory system to control its stock levels. For a popular product,...

DA store uses a (Q,R) inventory system to control its stock levels. For a popular product, historical data show that the distribution of monthly demand is approximately Normal, with mean 56 and standard deviation 16. Lead time for this paint is about 20 weeks. Each product costs the store $8. Fixed cost of replenishment is $20 per order and holding costs are based on a 35% annual interest rate. a) (10 pts) What is the optimal lot size (order quantity) and reorder level? b) (5 pts) Achieve no stockouts in 90% of the order cycles? c) (5 pts) Satisfy 90% of the demand on time?

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Economic Order Quantity refers to the number of unit the company should add to the inventory and the order is made to minimize the total inventory cost. It maintain a balance between ordering costs and carrying costs. The total inventory cost include the Annual ordering cost, holding cost and total product cost.

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