An optometrist orders eyeglass frames at a cost of $40per frame and sells each frame for $70. Annual holding costis 20% of the optometrist’s cost of purchasing a frame. Eachtime frames are ordered, a cost of $200 is incurred. Becauseof lost goodwill, a cost of $50 is incurred each time acustomer wants a frame that is not in stock. Frames aredelivered one week after an order is placed. Annual demandfor frames is N(1,040, 15.73).a Assuming all shortages are backlogged, determinethe order quantity and reorder point. b Assuming all shortages result in lost sales, deter-mine the order quantity and reorder point. c To meet 95% of all orders from stock, what shouldbe the reorder point?d To have shortages occur during an average of twolead times per year, what should be the reorder point?

Practical Management Science
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ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
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An optometrist orders eyeglass frames at a cost of $40
per frame and sells each frame for $70. Annual holding cost
is 20% of the optometrist’s cost of purchasing a frame. Each
time frames are ordered, a cost of $200 is incurred. Because
of lost goodwill, a cost of $50 is incurred each time a
customer wants a frame that is not in stock. Frames are
delivered one week after an order is placed. Annual demand
for frames is N(1,040, 15.73).
a Assuming all shortages are backlogged, determine
the order quantity and reorder point.

b Assuming all shortages result in lost sales, deter-
mine the order quantity and reorder point.

c To meet 95% of all orders from stock, what should
be the reorder point?
d To have shortages occur during an average of two
lead times per year, what should be the reorder point?

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