Advanced Engineering Mathematics
10th Edition
ISBN: 9780470458365
Author: Erwin Kreyszig
Publisher: Wiley, John & Sons, Incorporated
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Transcribed Image Text:17. A manager of an inventory system believes that inventory models are important
decision-making aids. The manager has experience with the EOQ policy, but has never
considered a backorder model because of the assumption that backorders were "bad"
and should be avoided. However, with upper management's continued pressure for
cost reduction, you have been asked to analyze the economics of a backorder policy
for some products that can possibly be backordered. For a specific product with
D = 800 units per year, C. = $150, C₁ = $3, and C₁ = $20, what is the difference
in total annual cost between the EOQ model and the planned shortage or backorder
model? If the manager adds constraints that no more than 25% of the units can be
backordered and that no customer will have to wait more than 15 days for an order,
should the backorder inventory policy be adopted? Assume 250 working days per
year.
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