Question 2. DDD company sells a certain type of laundry bleacher called \"Whiten

Question

Question 2. DDD company sells a certain type of laundry bleacher called "Whiten". DDD uses a periodic inventory review policy to determine the stock level of Whiten for each month, i.e., DDD reviews the inventory level of Whiten at the beginning of each month, at which point they place a new order. The monthly demand of Whiten is normally distributed with a mean of 30 and a variance of 16·The demands in any two months are independent from each other. DDD buys Whiten at $100 per unit and sells it at unit retail price of S290. DDD estimates that monthly holding cost per unit of Whiten is 10% of its unit purchase price. Suppose that DDD buys whiten from a nearby supplier. and thus the lead time is negligible. If a customer attempts to buy Whiten from DDD, and finds that the product is out of stock, then DDD will give customer a gift check for $90 that can be used towards the purchase of Whiten at the beginning of next month. Assume all customers that are given this gift check come back to DDD at the beginning of next month to buy Whiten. How many units of Whiten should DDD have in inventory at the beginning of each month?

Explanation / Answer

Cost of Whiten $ 100.00 Retail price $ 290.00 Cost of understocking Cu $    90.00 Cost of overstocking Co, 10% of Cost $    10.00 Critical ratio, Cu/Cu+Co           0.90 Monthly demand Mean 30 Variance 16 Std dev 4 Optimal inventory,Q 35.13 NORMINV(0.90,30,4)

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