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Hervis Rent-a-car has a fleet of 2,500 Rockets serving the Los Angeles Area. All Rockets are maintained at a central garage. On the average, eight Rockets per month require a new engine. Engine cost $850each. There is also a $ 120 order cost (independent of the number of engines ordered).
Hervis has an annual holding cost rate of 30% on engines. It takes two weeks to obtain the engines after they are ordered. For each week a car is out of service, Hervis loses $40 profits.
a) Determine Hervis' optimal order policy for engines.
b) How many days after receiving an order does Hervis run out of engines? How long is Hervis without any engines per cycle?
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