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Mobil Films buy a petroleum based raw material that it uses in its production process for films. The production process demand for this raw material can be approximated by a Normal random variable with mean 25000lbs and standard deviation 3750lbs per day. The supplier of the raw material is far away, and it takes 8 days for the supplier to deliver an order. Each time an order is issued to the supplier Mobil Films incur $340 fixed transportation cost and an additional $45 for handling the paperwork. Annual holding cost for each pound of raw material is 20% and each pound of raw material costs $1.25. Assume that the plant works for 320 days a year. Mobil Films use (r, Q) model to manage inventory and order according to EOQ.
a) What is the order quantity for raw materials in lbs?
b) If Mobil Films would like to be in stock 99% of all reorder periods, what would be the inventory level that Mobil Films should issue an order?
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Mobil Films buy a petroleum based raw material that it uses in its production process for films. The...
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