If the order lead time is 4 months, what is the reorder level of the (s, Q) policy?

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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The demand rate for a product is 100 units per month. Each time an order is placed, a fixed cost of $40 is incurred. The purchase price for the product is $12 and its selling price is $20. The inventory holding cost rate is 20% per year.

If the order lead time is 4 months, what is the reorder level of the (s, Q) policy?

Expert Solution
Step 1: Determine given variables

Monthly Demand (D) = 100

Ordering cost = 40

Purchase price = 12

Selling price = 20

Inventory holding cost = (20/100)12=2.4

Lead time (L) = 4 

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