DATA:

(R, Q) Policy
K Administrative cost for placing each order 1,500.00
h Holding cost per each car 3,000.00 per year
p Shortage cost per car short 1,000.00
Probability of Service Level 0.75
d Uniform rate of sales 900.00 per year
Time the car is delivered after the order is placed 2/3 of a month
Normal distribution mean 50.00
Normal distribution standard deviation 15.00

a The order quantity for each production run of cars should be 60 units
Q= (2dk/h)1/2*(p+h/p)1/2
900.00 4.00
30.00 2.00
60

b Reorder Point is 60.05

K(1-L) 0.25 equal to 0.67

R = mean + K1-L*Standard Deviation

R= 60.05

d This inventory policy would provide

Safety stock = 10.05