1. Scary Clowns, Inc., supplies special makeup cases to a major circus. The circus orders its EOQ of 1200 cases every two months from Scary Clowns. Scary Clowns incurs setup costs of $1800 every time it produces these cases, and its annual holding cost per case is $3.

a. How many units should Scary Clowns produce in each batch?

b. What is the total annual setup and holding cost for Scary Clowns using this policy?

2. Suzy’s Candy Distributors has an annual demand for its boxes of “Chocolate Heaven Candies” of 250,000 units, an ordering cost of $85 per order, and an annual holding cost percentage of 16%. The current purchase price for each box is $28, but the supplier has notified Suzy that starting next week, the purchase price will rise to $40. Suzy’s inventory of boxes is about to be depleted. How many boxes should Suzy purchase?

3. Consider a periodic review system, where orders are placed every 14 days. The firm strives to provide a 96.5% cycle service level. Demand averages 400 units per day, and the standard deviation of demand per day is 84 units. Lead time is 10 days.

a. How many units of safety stock should be held?

b. What should the target inventory level (order-up-to level) be?

c. Suppose that it is time to review the item. There are 170 units in inventory, and there is an outstanding backorder for 300 units. An order for 88 units is on the way. How many units should be ordered now?

4. Consider a continuous review inventory system. Demand is normally distributed with an average of 64,000 per month and a monthly standard deviation of 8020 units. Lead time is two weeks (assume four weeks per month). If the firm desires only a 67% cycle service level, how many units of safety stock should be held?

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