Wood County Hospital consumes 1,000 boxes of bandages per week. The price of bandages is $35 per box, and the hospital operates 52 weeks per year. The cost of processing an order is $15 and the cost of holding one box for a year is 15 percent of the value of the material.
a. The hospital orders bandages in lot sizes of 900 boxes. What extra cost does the hospital incur, which it could save by using the EOQ method?
b. Demand is normally distributed, with a standard deviation of weekly demand of 100 boxes. The lead time is 2 weeks. What safety stock is necessary if the hospital uses a continuous review system and a 97 percent cycle-service level is desired? What should be the reorder point?
c. If the hospital uses a periodic review system, with P = 2 weeks, what should be the target inventory level, T?