Problem:

Demand for the DeskPro computer at BestBuy is 1,000 units per month. BestBuy incurs a fixed order placement, transportation, and receiving cost of $4,000 each time an order is placed. Each computer costs BestBuy $600 and the retailer has a holding cost of 10%. The delivery lead-time is 6 days. (Assume 30 days in a month.)

Required:

Question 1) Describe explicitly the optimal inventory system for DeskPro. (Draw the corresponding inventory-time diagram. Explain how the inventory system works, what is the optimal order amount, reorder point and the optimal cost of implementing this system.)

Question 2) The store manager at BestBuy would like to have the optimal lot size to be 300. For this to happen, calculate how much the order cost per lot should be reduced.

Solve the problem and show all work.