M7 A3. Cullowhee Shoe Stores carries a basic hiking boot that the sell through an online portal at an approximate constant rate of 900 pairs of shoes every three months (they are very good at marketing) Cullowhees current buying policy is to order 450 pairs every time an order is placed. It costs Cullowhee $29 every time they place an order. The annual holding cost rate is 18%. Cullowhee is able to buy these hiking boots at $68 per pair. Other quantity discounts offered by the manufacturer are shown below: ORDER QUANTITY 0-99 100-199 200-299 300 or more PRICE PER PAIR 74 72 70 68 a) b) c) Should Cullowhee keep purchasing 450 pairs each time they place an order? What it the total annual cost (including purchase cost) for the optimal order quantity? What is the optimal order quantity? M7 A4. Highland Drugs, Inc. sels a variety of health and beauty aids. A particular shampoo costs Highland $2.75 per bottle. Using a continuous review system, an order quantity of 350 bottles per order is recommended. The store operates 52 weeks per year. Lead time is two weeks and the demand for the product per week can be estimated as normally distributed with a demand of 62 bottles and a standard deviation of 6 bottles. a) what is the reorder point if the company wants to have a 1% risk of stockout? b) How much safety stock does the company hold? c) What is the standard deviation of demand during lead time (Odt)? d) If the company holds 10 bottles of safety stock, what service level policy would the company be using (e.g. enter 98.2% as 98.2)? (Hint: Use Goal Seek)
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