Practical Management Science
Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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Furnco sells secretarial chairs. Annual demand is
normally distributed, with mean of 1,040 chairs and standard
deviation of 50.99 chairs. Furnco orders its chairs from its
flagship store. It costs $100 to place an order, and the lead
time is two weeks. Furnco estimates that each stockout
causes a loss of $50 in future goodwill. Furnco pays $60 for
each chair and sells it for $100. The annual cost of holding
a chair in inventory is 30% of its purchase cost.
a Assuming that all demand is backlogged, what are
the reorder point and the safety stock level?

b Assuming that all stockouts result in lost sales, de-
termine the optimal reorder point and the safety stock

level.

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