Inventory models are important decision making aids

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A manager of an inventory system believes that inventory models are important decision making aids. While often using an EOQ policy, the manager has never considered a back-order model because of the assumption that back-orders were “bad” and should be avoided. However, with upper management’s continued pressure for cost reduction, you have been asked to analyze the economics of a back-ordering policy for some products that can possibly be back-ordered. For a specific product with D = 800 units per year, Co = $150, Ch = $3, and Cb $20, answer the following: What is the total annual cost for the EOQ model? What is the total annual cost for the planned shortage model? If the lead time for new orders is 20 days for the inventory system shown, find the reorder point for EOQ. If the lead time for new orders is 20 days for the inventory system shown, find the reorder point for the backorder model.

Reference no: EM131193392

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