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1. Rocky Mountain Tire Centre sells 20,000 tires of a particular type per year. The ordering cost for each order is $40, and the holding cost is 20% of the purchase price of the tires per year. The purchase price is $20. per tire if fewer than 500 tires are ordered, $18. Per tire if more than 500 but fewer than 1,000 tires are ordered and $17. per tire if 1,000 or more tires are ordered. How many tires should Rocky Mountain order each time it places an order?

Quantity Unit Price

1-499                      $20.

500-999                 $18.

1000 & over           $17

 

2. Based on available information, lead time demand for CD-ROM drives averages 50 units (normally distributed), with a standard deviation of 5 drives. Management wants a 97% service level.

  1. What value of Z should be applied?
  2. How many drives should be carried as safety stock?
  3. What is the appropriate reorder point?

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