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Inventory Model

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Henderson Furniture sells reproductions of 18th century furniture. For a particular table, the assumptions of the inventory model with back orders are valid.
D = 200 tables per year
I = 25% per year
C = $800 per table
Co = $80 per order
Cb = $50 per table per year
The store is open 250 days a year.

3a. What are the values for order quantity and number of planned back-orders that will minimize total cost?

3b. What is the maximum inventory?

3c. What is the cycle time?

3d. What is total cost?

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This posting provides details on developing an inventory model through calculation of maximum inventory, cycle time, total cost etc. for Henderson Furniture.

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NOTE:According to the data, I(I.e. rate of carrying cost is 25% of the Cost(C ). At this rate, the EOQ is less than the no of back orders allowed which cannot be possible in practical case. Still I have provided the calculations with formulas and approach. Please check the data and change the value of I if it is not 25%. The answers would change ...

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