Palins Muffler Shop has one standard muffler that fits a large variety of cars. The shop wishes to establish a periodic review system to manage inventory of this standard muffler. Use the information
Palin’s Muffler Shop has one standard muffler that fits a large variety of cars. The shop wishes to establish aperiodic reviewsystem to manage inventory of this standard muffler. Use the information in the following table to determine the optimal inventory target level (or order-up-to level).
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Annual demand 3,770 mufflers Ordering cost $50per order
Standard deviation of daily demand 6 mufflers per working day Service probability83%
Item cost $28.00per muffler Lead time2working days
Annual holding cost30% of item value Working days290per year
Review period 18working days
a.What is the optimal target level (order-up-to level)?(Use Excel’s NORMSINV() function to find the correct critical value for the givenα-level. Do not round intermediate calculations. Round “z” value to 2 decimal places and final answer to the nearest whole number.)
b.If the service probability requirement is 96 percent, the optimal target level will:
multiple choice
Increase
Decrease
Stay the same
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