A manager must set up inventory ordering systems for two new production items: P34 and P35.
P34 can be ordered at any time, but P35 can be ordered only once every 4 weeks. The company
operates 50 weeks a year, and the weekly usage rates for both items are normally distributed. The
manager has gathered the following information about the items.
Item P34 Item P35
Average weekly demand 60 units 70 units
Standard deviation 4 units per week 5 units per week
Unit cost $15 $20
Annual holding cost 30% 30%
Ordering cost $70 $30
Lead time 2 weeks 2 weeks
Acceptable stockout risk 2.5% 2.5%
a. When should the manager reorder each item?
b. Compute the order quantity for P34.
c. Compute the order quantity for P35 if 110 units are on hand at the time the order is placed.