1. RGK, Inc. manufactures smart cell phones. RGK has recently introduced a new line of smart phones that is popular for college students. RGK purchases batteries from an outside supplier. RGK has noted the following demand distribution for its new phones. Demand/month Probability 1,200 .10 1,300 .15 1,400 .15 1,500 .20 1,600 .20 1,700 .10 1,800 .05 1,900 .05 The purchase price to RGK is $90 per battery. The clinic has an ordering cost of $35. Cost of carrying inventory is 35 percent of the item value per unit per year. Order lead time is constant at one month. The work year consists of 12 months. a. Compute the economic order quantity for the RGK purchases. b. Compute the reorder point and buffer stock level for a 99-percent customer service level. Assume order quantity and reorder point can be computed independently. c. What is the total annual cost of carrying the buffer stock computed in part b?

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Ordering Cost (S) = $35

Holding Cost (H) = h*i=90*35%=31.5

Unit price (h) = $90

EOQ= ?2DS/H=?(2*18000*35)/31.5

= 200 units.
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b- As per the figure b. The cumulative probability table with 99% customer service level monthly demand is 1900.

Hence Reorder Point= Monthly demand level*lead time= 1900*1=1900

Buffer stock level;= Reorder Point- Average monthly demand

=1900-1500

=400

C- The annual holding cost of buffer stock= Buffer stock level*Holding cost

=400*31.5

=$12600

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