solution

The A&M Hobby Shop carries a line of radio-controlled model racing cars. Demand for the cars is assumed to be constant at a rate of 60 cars per month. The cars cost $70 each, and ordering costs are approximately $15 per order, regardless of the order size. The annual holding cost rate is 20%.

(a) Determine the economic order quantity and total annual cost (in $) under the assumption that no backorders are permitted. (Round your answers to two decimal places.)

Q*=

TC= $

(b) Using a $45 per-unit per-year backorder cost, determine the minimum cost inventory policy and total annual cost (in $) for the model racing cars. (Round your answers to two decimal places.)

Q* =

TC= $

(c) What is the maximum number of days a customer would have to wait for a backorder under the policy in part (b)? Assume that the Hobby Shop is open for business 300 days per year. (Round your answer to two decimal places.)

______ days

(d) Would you recommend a no-backorder or a backorder inventory policy for this product? Explain.

Yes, the maximum wait is over a week long, but the cost savings of the backorder case is large enough to justify a long wait.

Yes, the maximum wait is less than a week and the backorder case has a lower cost than the EOQ case.

No, the maximum wait is over a week long, which does not justify the cost savings of the backorder case.

No, the maximum wait is less than a week but the EOQ case has a lower cost than the backorder case.

No, the maximum wait is over a week long and the EOQ case has a lower cost than the backorder case.

(e) If the lead time is six days, what is the reorder point for both the no-backorder and backorder inventory policies? (Round your answers to two decimal places.)

EOQ r=

Backorder r=