Master Hatter's demand for hats is 4000 per year. The order cost is $25 and the carrying cost is 15% of the price paid to the supplier. The cost paid to supplier is $12 per unit.
a. Compute the Economic Order Quantity.
b. The supplier has indicated that Master Hatter can have a price of $11 per hat if he orders at least 500. How many hats should Master Hatter order to minimize inventory management cost?
c. Assuming that the average daily demand is 200 hats with a standard deviation of 10. Master Hatter desires a customer service level of 95% (Statistical Z score of 1.64). Supplier lead time is 3 days. What is the reorder point?
d. Based on the data in part c, what is the average lead time demand?
e. Based on the data in part c, what is the safety stock amount?