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Question: Demand for disposable razors at Chevere Drugs Store (CDS) averages seven packages per day. The razors cost CDS $0.80 per package and sell for $1.49. CDS uses a 15% annual holding cost rate, based on the unit cost, and estimated the cost to place an order at $15. CDS is open 365 days a year and requires a safety stock of 50 packages. The lead time for delivery is four days. Determine the following:
a) The optimal inventory policy (order quantity and reorder point) for the disposable razors.
b) The number of days between orders (cycle time).
c) The total annual inventory cost (holding, ordering, and procurement) and the projected annual net profit of this policy.
d) What assumptions did you make regarding demand in solving this problem?
e) Would your answers to part a change if CDS requires its customers to purchase razors in dozens?
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