Henderson Furniture Sells Reproductions of 18th Century Furniture

question 31

Essay

Henderson Furniture sells reproductions of 18th century furniture. For a particular table, the assumptions of the inventory model with backorders are valid.
D = 200 tables per year
I = 25% per year
C = $800 per table
C_o = $80 per order
C_b = $50 per table per year
The store is open 250 days a year.
a.What are the values for order quantity and number of planned backorders that will minimize total cost?
b.What is the maximum inventory?
c.What is the cycle time?
d.What is total cost?

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Definitions:

Transaction

An exchange or transfer of goods, services, or funds between two or more parties.

Deadweight Losses

Efficiency losses in an economy occurring when total societal welfare is not maximized, typically as a result of market distortions like taxes or subsidies.

Competitive Equilibrium

A state in a market where demand equals supply, meaning that there's no excess supply or demand at the current price.

Allocative Efficiency

A state of resource allocation where it is impossible to make any one individual better off without making someone else worse off, maximizing societal welfare.