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The Discount Carpet Store is open 360 days per year and sells 11,000 square yards of
Super Shag carpet annually. Demand for Super Shag carpet is constant during the year.
The annual carrying cost for Super Shag carpet is $0.75 per square yard and the ordering
cost is $150. Based on an EOQ analysis the Discount Carpet store has determined that
the relevant costs will be minimized if 2,100 square yards of Super Shag Carpet are
ordered each time an order is placed. The lead time for orders is 7 days.
QOPT = 2100
L=7
𝜇 L = 𝜇 t x L (30)(7) = 210
𝜎L = 𝜎t x √L (7)(5) = 18.5
T = QOPT / 𝜇 t (2100)/(30) = 70
𝜇 THL = 𝜇 t (T+L) (30)(70+7) = 2310
𝜎THL = 𝜎t √(T+L) (7)( √77) = 61
M = Norm.Inv(.95, 2310, 61)
SS = 2200 – 2310 = -110
Inventory Practice
The Discount Carpet Store is open 360 days per year and sells 11,000 square yards of
Super Shag carpet annually. Demand for Super Shag carpet is constant during the year.
The annual carrying cost for Super Shag carpet is $0.75 per square yard and the ordering
cost is $150. Based on an EOQ analysis the Discount Carpet store has determined that
the relevant costs will be minimized if 2,100 square yards of Super Shag Carpet are
ordered each time an order is placed. The lead time for orders is 7 days.
SS = 240 – 210 = 30
The J&B Card Shop sells calendars which it purchases once each year. Demand for
calendars follows approximately a normal distribution with mean 2500 and standard
deviation 200. The calendars cost $2.50 each and J&B sells them for $8. At the end of the
selling season J&B can sell any surplus calendars for $2. What formula would you put
into Excel to find the optimal number of calendars to order to minimize the expected
salvage and shortage costs?
Solution:
cs=2.5-2=0.5
cu=8-2.5=5.5
5.5/(5.5+0.5)=0.92
=norminv(0.92, 2500, 200)