Ali is a drug wholesaler supplying 55 independent drug stores. Ali wishes to determine an optimal inventory policy for Comfort, a headache remedy. Sales of Comfort are relatively constant as the past 10 weeks of data indicate. Each case of Comfort costs Ali OMR10 and a 14% annual holding cost rate is used. The cost to prepare a purchase order for is OMR12. The lead time for a delivery of Comfort has averaged 4 working days. Lead time demand has been estimated as having a normal distribution with a mean of 80 cases and a standard deviation of 10 cases. We want at most a 2% probability of selling out of Comfort during this lead time.

Ali is a drug wholesaler supplying 55 independent drug stores. Ali wishes to determine an optimal inventory policy for Comfort, a headache remedy. Sales of Comfort are relatively constant as the past 10 weeks of data indicate. Each case of Comfort costs Ali OMR10 and a 14% annual holding cost rate is used. The cost to prepare a purchase order for is OMR12. The lead time for a delivery of Comfort has averaged 4 working days. Lead time demand has been estimated as having a normal distribution with a mean of 80 cases and a standard deviation of 10 cases. We want at most a 2% probability of selling out of Comfort during this lead time.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter8: Budgeting

Section: Chapter Questions

Problem 2CMA

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