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Inventory Control Models

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John Lindsay sells disks that contain 25 software packages that perform a variety of financial functions including net present value, internal rate of return, and other financial programs tpically used by business students majoring in finance. Depending on the quantity ordered, JOhn offers the following price discounts. The annual demand is 2000 units on average. His setup costs to produce the disks is $250. He estimates holding costs to be 10% of the price or about $1 per unit per year.

PRICE RANGE
Quantity from 1 to 500 price = $10.00
Quantity from 501 to 1000 price = $9.95
Quantity from 1001 to 1500 price = $9.90
Quantity from 1500 to 2000 price = $9.85

(a)What is the optimal number of disks to produce at a time
(b)What is the impact of the following quantity price schedule on the optimal order quantity?

PRICE RANGE
Quantity from 1 to 500 price = $10.00
Quantity from 501 to 1000 price = $9.99
Quantity from 1001 to 1500 price = $9.98
Quantity from 1501 to 2000 price = $9.97

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Solution Summary

Solution contains calculation of optimal number of disks to produce at a time .

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Inventory Control Model Problem

A company has decided to order 360 units whenever the on-hand inventory falls to 100 units. There appears to be no seasonal fluctuation to the demand, but it does fluctuate daily and is approximately normally distributed. Historically, the lead time has been four days, and the average sales during this four day period are 80 units with a standard deviation of 10 units. There are 250 working days per year. How much safety stock is the company carrying? What service level is implied by this policy?

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