Furnco sells office chairs. Annual demand is normally distributed with a mean of 1040 chairs and a standard deviation of 50.99 chairs. It costs $100 for Furnco to place an order from the wholesaler, and the lead time is two weeks. They buy the chairs for $60 each and sell them for $100 each. Each stockout is estimated to cause a loss of $50 in future goodwill. The annual holding cost for each chair in inventory is 30% of its purchase cost. (a) Assuming all demand is backlogged, what are the reorder point and the safety stock level? (b) Assuming all stockouts result in lost sales, what are the new optimal reorder point and safety stock level? (c) Assume instead that demand is deterministic at 1040 chairs per year. What should the ordering policy be now?

Furnco sells office chairs. Annual demand is normally distributed with a mean of 1040 chairs and a standard deviation of 50.99 chairs. It costs $100 for Furnco to place an order from the wholesaler, and the lead time is two weeks. They buy the chairs for $60 each and sell them for $100 each. Each stockout is estimated to cause a loss of $50 in future goodwill. The annual holding cost for each chair in inventory is 30% of its purchase cost. (a) Assuming all demand is backlogged, what are the reorder point and the safety stock level? (b) Assuming all stockouts result in lost sales, what are the new optimal reorder point and safety stock level? (c) Assume instead that demand is deterministic at 1040 chairs per year. What should the ordering policy be now?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 21P

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