The airline company employs a fixed order size with safety

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An airline company uses a fixed order size with safety stock system to control inventory of a fast-moving item. The inventory position of the item is tracked continually. The following is relevant information about the item.

Expected annual demand 1920 units per year

Average monthly demand 1920/12 = 160 units per month

Ordering cost $25 per order

Annual holding cost as a fraction of unit value

36 percent

Unit purchase price $20 per unit

Lead time 3 months

Standard deviation of monthly demand 30 units

The manager specifies the probability of no stockout in an inventory cycle to be 96 percent. Demand per month is normally distributed.

a. Suppose Q = EOQ. Determine EOQ and R, the reorder point. Assume that demand in any given month is normally distributed and is independent of demand in other months.

b. What is the safety stock for this item?

Reference no: EM13389649

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