The new office supply discounter, Paper Clips, Etc. (PCE), sells a certain type of ergonomically correct office chair that costs $400. The annual holding cost rate is 40% of the item cost, annual demand is 1200 units, and the ordering cost is $25 per order. The lead time is 8 days. Because demand is variable (standard deviation of daily demand is 2.4 chairs), PCE has decided to establish a customer service level of 90% (Z=1.28). The store is open 300 days per year.
a) What is the optimal order quantity?
b) What is the safety stock?
c) What is the reorder point?