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Question
HG's clothes sells a number of white dress shirts. The shirts which bear the store label, are shippedfrom a manufacturer in New York City. Hi, the proprietor says: "I want to be sure that I never run outof dress shirts. I always try to keep at least two months of supply in stock. When my inventory dropsbelow that level, I order another two month's supply. I have been using this method for 20 years andit works". The shirts cost $8 and each sell for $25. The cost of processing an order and receiving newgoods amounts to $80 and the replenishment lead time is one month. Monthly demand isapproximately distributed with mean 120 and standard deviation 60. Monthly average of 120 units isused as forecast. Assume a 15% annual holding cost rate.
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